developing country labor market adjustments to trade reform · table 1-1. u.s. government bilateral...

DEVELOPING COUNTRY LABORMARKET ADJUSTMENTS TOTRADE REFORMAN OVERVIEW AND RESOURCE GUIDE

JUNE 2006

THIS PUBLICATION WAS PRODUCED BY NATHAN ASSOCIATES INC. FOR REVIEW BY THE UNITED STATESAGENCY FOR INTERNATIONAL DEVELOPMENT.

Developing Country Labor MarketAdjustments to Trade ReformAn Overview and Resource Guide

June 2006

This publication was produced by Nathan Associates Inc. for review by the United States
Agency for International Development.

Developing Country Labor MarketAdjustments to Trade ReformAn Overview and Resource Guide

DISCLAIMER

The views expressed in this publication do not necessarily reflect the views of the United States Agency for

International Development or the United States Government.

Sponsored by the Economic Growth office of USAID’s Bureau for Economic Growth, Agriculture and Trade (EGAT), and implemented by Nathan Associates Inc. under Contract No. PCE-I-98-00016-00 Task Order 013, the Trade Capacity Building (TCB) Project helps developing countries assess their trade constraints and prioritize their trade-related technical assistance needs. The project provides trade experts for short-term technical assistance in developing countries and assists USAID missions in designing, implementing, monitoring, and evaluating technical assistance that will stimulate economic growth and reduce poverty. Electronic copies of reports and materials related to trade needs assessments, resource guides, and trade training workshops are available at www.tcb-project.com. USAID Missions and Bureaus may learn more about activities under this project by contacting Tracy Quilter, USAID/EGAT, TCB Project Task Manager, [email protected].

The primary authors of this report are Lynn Salinger of Associates for International Resources and Development (AIRD) and Bruce Bolnick, Matthew Reisman, and Erin Endean of Nathan Associates Inc. Contributors include Peter Thormann and Grace Kibuthu. The team is also grateful to Anne Spevacek and René Bernier of USAID’s Development Information Services for their preparation of several key inventories of programs, projects, and indicators, and to USAID’s Bureau’s Glenn Rogers for his overall technical guidance of this activity.

For further information or hard copies of TCB publications, please contact

Erin Endean Nathan Associates Inc. Chief of Party, TCB Project [email protected]

ContentsAcronyms and Abbreviations iii

Preface v

Executive Summary vii

1. Introduction 1

Trade Reform and the Challenges of Adjustment 1

Scope, Overview, and Objectives of This Paper 4

2. Conceptual Framework and Developing Country Context 5

Conceptual Framework 5

Influential Structural and Institutional Factors 8

Labor Markets in Developing Countries 8

3. Empirical Evidence on Trade-Induced Labor Adjustments 10

Data Sources and Empirical Methods 10

Short-term Adjustments in the Labor Market 12

Longer-term Adjustments: Trade, Growth, and Labor Markets 22

Knowledge Gaps 23

4. Donor Assistance: Lessons of Experience 27

Scope of Trade-related Labor Adjustment Assistance 27

Review of Donor Experience 28

Knowledge Gaps Related to Programming 36

5. Recommendations for USAID 39

Appendix A. Technical Note on IndicatorsAppendix B. Sources ConsultedAppendix C. ContactsAppendix D. Communities of Practice

I I

Illustrations

Figures

Figure 1-1. Focus of Trade-Related Labor Adjustment Assistance 4Figure 2-1. Adjustment to Trade Liberalization 6Figure 4-1. Programming for Trade-related Labor Adjustment and Associated

Challenges 28Figure 4-2. U.S. Trade Capacity Building Assistance, by Category 34

Tables

Table 1-1. U.S. Government Bilateral Free Trade Agreements 2Table 4-1. U.S. Trade Capacity Building Assistance on Human Resources and

Labor Standards, 2002–2005 34

Exhibits

Exhibit 3-1. Zambia’s Garment Industry: Collapse and Restructuring 14Exhibit 3-2. NAFTA and Effects on Mexican Agricultural Labor 16Exhibit 4-1. Improving Labor Rights: The Trade Agreements Angle 37

Acronyms and AbbreviationsALEF Advancing Learning and Employability for a Better Future

(USAID/Morocco)

ALMP Active labor market programs

ANE Asia and Near East Bureau (USAID)

CGE Computable general equilibrium models

DCHA Democracy, Conflict, and Humanitarian Assistance

DIS Development Information Services (USAID)

DTIS Diagnostic Trade Integration Studies

E&E Europe and Eurasia

EC European Community

EG Economic growth

FDI Foreign direct investment

FIAS Foreign Investment Advisory Service

FTA Free trade agreement

GATE Greater Access to Trade Expansion (USAID/EGAT/WID)

GDA Global Development Alliance

GTAP Global Trade Analysis Project

GWIT Global Workforce in Transition (USAID/EGAT/ED)

HR/LS Human resources and labor standards

ILAB International Labor Affairs Bureau (of the U.S. Department of Labor)

ILO International Labor Organization

IR Intermediate result

MEDA Mediterranean Development Assistance

NAFTA North American Free Trade Agreement

OECD Organization for Economic Cooperation and Development

SEED Support for East European Democracy

SME Small and medium enterprise

SO Strategic objective

TAA Trade adjustment assistance

TCB Trade capacity building

I V

TIR Trade Impact Review

USAID U.S. Agency for International Development

USDOL U.S. Department of Labor

USGAO U.S. Government Accountability Office

USTR U.S. Trade Representative

WTO World Trade Organization

PrefaceThe most significant asset of most poor households in the developing world is the labor ofhousehold members. How globalization, in particular trade liberalization—multi lateral, regional,bilateral, or unilateral—affects workers in developing countries is thus a critical aspect ofdevelopment assistance.

This paper explores how labor markets and workers adjust to the opportunities brought by tradeliberalization and the accompanying challenges of heightened global competition. We summarizerelevant research, describe current programs funded or implemented by donors including the U.S.Agency for International Development (USAID), and recommend how USAID can supporttransitions in labor markets of partner countries undergoing economic adjustment as a result oftrade liberalization.

This paper is part of a broad process of knowledge sharing and the development of a Communityof Practice on the topic. In 2005, USAID initiated internal knowledge sharing that broughttogether practitioners with a common interest in labor-related assistance under the leadership ofthe Bureau of Economic Growth, Agriculture, and Trade (EGAT). In conducting the research forthis paper, we met with analysts and practitioners from think tanks, other U.S. governmentagencies, and international organizations. Thus, preparation of this overview and resource guidehas helped to link USAID to other members of the development community with an interest(research or programmatic) in labor market adjustments to trade liberalization.

Executive SummaryTrade-liberalizing agreements can present opportunities for producers and consumers, but theyalso can induce significant economic adjustments at the national level as well as for individualworkers. USAID and other donors have supported developing countries’ efforts to participateeffectively in the global economy, providing a variety of resources and technical assistanceknown as “trade capacity building” (TCB). Conventional definitions of TCB, including thoseused by USAID and the Organization for Economic Cooperation and Development (OECD),have encompassed assistance that enables developing countries to participate more effectively intrade negotiations, implement commitments made in trade agreements, and respond to theopportunities that globalization brings. Recent statements by donor and technical assistanceagencies suggest that helping developing countries cope with transitional adjustment issues willreceive greater attention in coming years.

In this overview and resource guide, we focus on trade-induced adjustments at the labor marketand worker level. Labor markets adjust in many ways to trade liberalization, but a simpleconceptual framework is as follows:

An initial trade “shock” to supply and demand conditions occurs in the product marketswhen trade barriers are lowered in the home country or in a significant trading partner.

Short-term adjustments occur, reflecting changes in the demand for labor. Shifts affectemployment, wages, working conditions, and job security, with workers in activities thateither produce for export or use imported content in goods sold domestically gainingadvantage, and workers in activities facing heightened import competition negativelyaffected.

A longer term adjustment to both labor demand and supply follows, as trade reformstimulates investment and output, in turn affecting demand for labor. On the supply side, aswork opportunities arise, workers have an incentive to learn new skills in order to pursue newjob opportunities.

Each stage of this process is conditioned by structural and institutional factors that reflectparticular conditions in the country, industry, or region, including the business-enablingenvironment, labor market policies, and culture.

Labor market adjustments are complex and context-specific; moreover, significant gaps in dataand empirical methods prevent researchers from making definitive statements that apply across avariety of settings. Nonetheless, we derive the following conclusions from our survey of theeconomic literature on the impact of trade reforms on labor markets and workers:

V I I I L A B O R M A R K E T A D J U S T M E N T S

Aggregate employment. Most of the ex post evidence is drawn from data on formal jobs inmanufacturing—a small share of employment in most developing countries. Even this limitedbase of evidence reveals very different outcomes in different contexts. One consistent findingis that the impact of trade reform on aggregate employment is small, except in countries thatattract substantial amounts of foreign direct investment (outside the mineral sector).

Employment distribution. Many studies find little evidence that trade liberalization causessignificant reallocation of labor across sectors, but it does cause substantial job churning—hiring and firing—within sectors as labor is reallocated from less to more competitive firms.Adjustments within firms also may be substantial.

Sectoral effects. Empirical evidence of the impact of trade reform on incomes in the ruraleconomy and the informal sector is scant; studies have focused on urban, formal sectorworkers.

Wages and wage inequality. One of the clearest conclusions in the empirical literature is thattrade reform tends to increase wage inequality, primarily by increasing the wage premium forskills. Skilled workers are relatively scarce, and thus, increased demand for their labor maylead to substantial increases in their real wage. At the same time, in most developingcountries a majority of the workforce works in the informal sector, where the supply ofunskilled labor is abundant and wages are generally market determined. There, increaseddemand for labor may have little impact on wages. The rise in wage inequality does not meanthat unskilled workers are getting poorer; indeed, one analysis concluded that in a variety ofcountries, “exporting activities are associated with increasing incomes for the unskilled andthe poor” (Harrison 2005).

Gender differences. Trade reform can affect men and women differently. Female workers arefavored in many labor-intensive export industries, such as garments and footwear. Severalstudies have found evidence that trade liberalization reduces the gender wage gap in theformal sector. The flip side of increased opportunity, however, is vulnerability and increasedwork burdens overall. Women working in export industries are more at risk as a result ofincome or job loss from shifts in global competitiveness or in trading arrangements that affecttheir competitive position in target markets. Few mechanisms exist to help women managethe burden of formal employment in addition to household responsibilities.

The cost of adjustment to trade liberalization is especially onerous in poor countries. Very poorworkers face the greatest suffering from any loss of livelihood, because labor is their primary, ifnot sole, asset. In addition, many developing countries have high rates of unemployment andunderemployment; the scarcity of jobs means displaced workers may not quickly find alternateemployment, so their periods of lost income may be prolonged. Poor countries also lack formalinstitutions or mechanisms, such as unemployment insurance or other social safety nets, to helpworkers replace lost income on a temporary basis.

Beyond these generalizations, however, we know very little about the adjustment paths ofindividual workers who lose jobs or livelihoods as a result of trade reform—how long they arebetween jobs, how they support themselves and their families in between jobs, or how their newwages and working conditions compare to their former ones. Household surveys or trackingsurveys would be helpful to track this issue following implementation of significant trade

E X E C U T I V E S U M M A R Y I X

reforms. In general, safety nets, which could ease transitions for workers who lose jobs andincome following liberalization, are too costly for very poor countries, where more vulnerableand needy segments of the populace should have higher priority for support than displaced butable bodied workers.

One point of consensus that emerges in the literature is that a country’s long-term growth pathfollowing trade reform depends on how well it stimulates investment, which in turn depends oncomplementary structural and institutional factors that affect the investment climate or business-enabling environment. In countries with weak investment climates, reforms to addressdeficiencies are essential for achieving positive labor market outcomes in response to tradeliberalization. Labor regulations are critical components of the investment climate: burdensomelabor codes, characteristic of many poor developing countries, weaken the investment and jobcreation response to trade liberalization, particularly for labor-intensive industries. Another keyelement is exchange rate policy: the exchange rate affects the competitiveness of exports and theattractiveness of investment.

Few donor programs, past or present, name trade reform-related labor adjustment as an explicitgoal. Many, however, address one or both of two broad objectives:

Improving economy-wide labor market outcomes after trade liberalization, includingincreased formal sector jobs, lower unemployment, higher real wages and incomes, increasedlabor productivity, and reduced poverty.

Easing adjustment for dislocated workers and their communities by helping dislocatedworkers find new jobs, providing them with temporary income support during periods ofunemployment, and helping communities attract job-creating investment.

To improve economy-wide labor market outcomes, donors have pursued a variety of approaches,including providing the following three types of assistance:

Business-enabling environment. USAID has sponsored business-enabling environmentreform projects in every region. These projects have usually focused on removingadministrative and regulatory barriers to business operations, such as registration, licensing,and inspections procedures. Only a few projects have focused specifically on creating moreflexible labor markets.

Industry cluster/producer competitiveness. USAID has undertaken competitivenessenhancement projects that provide technical, management, marketing, and networkingassistance to cluster associations and individual companies in more than two dozen countries.Other donors have provided similar support. Many of these programs are explicitly linked tochanges in the regional or global trading (and therefore competitive) environment, includingthe negotiation or implementation of free trade agreements with the United States, economicpartnership agreements with the European Union, or regional trade arrangements. They oftenencompass workforce development and job creation components or objectives.

Factory, line, worker productivity. Boosting productivity may be linked to a competitivenessinitiative, but other considerations have also motivated this type of assistance. Improvedproductivity can help attract or retain foreign investment, and is thought to improve working

X L A B O R M A R K E T A D J U S T M E N T S

conditions when managers see that better conditions boost labor productivity. Efforts toimprove labor productivity can be at odds with efforts to create jobs, however; a well trained,more productive workforce may be able to produce more with fewer workers. Thus, ifdemand for workers’ output does not rise, the net employment impact may be negative.Therefore, productivity-related interventions must simultaneously consider how to ensure thatlabor demand remains strong or grows.

To ease adjustment for workers and their communities, donors have undertaken “active labormarket programs” (ALMP), which target labor market clearance directly. ALMPs include publicworks programs, employment services (job counseling, search assistance, matching, laborexchanges), training for unemployed workers, retraining following mass layoffs, training foryouth, microenterprise development, and wage subsidies. Overall, ALMPs are helpful inemergencies, but are decidedly limited as a long-term solution to employment issues. Providingemployment services that link labor supply with demand is one of the most productive and cost-effective activities in this category, assuming that other growth preconditions are in place.

Several other types of donor programs are relevant to the needs of workers in transition as a resultof trade-induced changes to the labor market. For example, between 1999 and 2004, the U.S.government spent more than $600 million on TCB assistance in the category of human resourcesand labor standards (HR/LS). Although most of the funding was allocated to combating childlabor, one-fourth was allocated to programs especially relevant to trade-induced laboradjustments: 20 percent was spent on promoting international labor standards, labor rights, andworker safety; and 5.5 percent was spent on workforce assessments and ALMPs.

The HR/LS category of the TCB database does not necessarily capture all funding for relevantprograms. Assistance related to export competitiveness (and job creation) would generally becounted under the “trade facilitation” category. And assistance related to improvements in theoverall business-enabling environment may not be captured in the TCB database at all.

In reviewing the literature and donor programs, we have identified gaps in our knowledge andunderstanding of the relationship between trade reform and labor adjustment at the labor marketor individual worker level. Our review has also revealed that little is known about the cost-effectiveness of programming decisions that have supported labor adjustment. Thus, werecommend seven ways that USAID could further its understanding of this subject and improveits programming in response to trade liberalization in the months and years to come.

1. Fill Gaps in Understanding of Trade Reform and Labor Adjustment. Better labor data andfuller knowledge of the adjustment process will improve the effectiveness and sustainabilityof USAID’s trade-related labor adjustment assistance. While USAID cannot fill all theknowledge and data gaps in this area, it can target select areas of need, such as standard dataon labor market conditions in partner countries and Institutional capacity for conducting laborforce, household, and enterprise surveys.

2. Explicitly Include Labor Adjustment Support in TCB Assistance. USAID and other donorsshould assess likely labor market effects of trade reform and implement programs to easeadjustment costs. Where possible, USAID should consult with the Office of the U.S. TradeRepresentative (USTR) before negotiations start to plan adjustment-related assistance. In

E X E C U T I V E S U M M A R Y X I

addition, USAID and other donors should ensure that trade-related labor adjustmentassistance is fully reflected in data collection and reporting on TCB assistance.

3. Design Trade-related Labor Adjustment Assistance Strategically and Comprehensively.When designing trade-related labor adjustment assistance, donors should take into accountthe full range of forces that affect the demand for and supply of labor, including trade trends,investment flows and the quality of the business-enabling environment. In addition, programsshould reflect an understanding of the short- and long-term dynamics of economic structuralchange after trade liberalization. Such comprehensive analysis facilitates design ofappropriate assistance strategies.

4. Assess Program Results and Longer-term Impact on Labor Markets and WorkerAdjustment Paths. USAID should examine the cost-effectiveness of various approaches toassistance, using metrics including cost per job placement, cost per worker trained to a givenskill level, or cost per unit of income generated by training or business support programs.Over time, missions should track job creation, labor market function, and productivity trends,using indicators such as those suggested in Appendix A.

5. Better Organize USAID Program Information to Facilitate Dialogue. Parties outsideUSAID do not have an access point for information on the Agency’s trade-related laboradjustment programs. Instead, they must rely on either Internet searches for project websitesor searches of USAID’s Development Experience Clearinghouse. All operating units andtheir projects should maintain websites; these should be interlinked.

6. Conduct Multiproject, Multicountry Evaluations. Thematic, multiproject, and multicountryevaluations are vital avenues for identifying effective program strategies. USAID couldconduct evaluations alone or in collaboration with other donors via OECD’s DevelopmentAssistance Committee.

7. Build a Multidonor Community of Practice. Communities of practice unite professionalswho are interested in various dimensions of a common theme. USAID should build andparticipate in a community of practice on labor adjustments to trade reform that includesUSAID missions, think tanks, research institutes, and consulting firms. Participation in such acommunity of practice would provide the Agency access to emerging research on trade-related labor adjustment as well as a forum for public leadership on the issue.

1. IntroductionTRADE REFORM AND THE CHALLENGES OF ADJUSTMENTDeveloping countries are liberalizing trade as they

Implement commitments from multilateral agreements, such as the 1994 “Uruguay Round”Agreements and successor plurilateral agreements under the auspices of the World TradeOrganization (WTO);1

Negotiate or implement regional trade agreements, including free trade agreements (FTAs)with developing countries and between developing and developed countries (Table 1-1summarizes U.S. bilateral FTAs involving developing countries); and

Introduce trade and other economic reforms unilaterally to help producers become morecompetitive in the global marketplace.

USAID and other donors have supported developing countries’ efforts to participate in the globaleconomic arena by providing substantial resources for trade capacity building. The USAIDstrategy document, Building Trade Capacity in the Developing World (March 2003), provides aconceptual framework for trade capacity building, indicating that USAID’s TCB projects willsupport participation in trade negotiations, implementation of trade agreements, and economicresponsiveness to opportunities for trade.

Trade-liberalizing agreements can present opportunities for exporters from signatory countries,but they also can induce significant economic adjustment during the transitional phase. Trade-related economic adjustments may occur

At the national level, as tariff reductions cut trade-derived revenues or adjustments in quotas,access rules, or as external quality requirements change markets for goods and services;

At the producer level, as changing relative prices induce economic actors to build new orreorient existing networks to improve their competitiveness, and as firms and farmsreorganize and strategize—individually or in producer associations—about how to remaincompetitive, invest in labor, and take advantage of trade opportunities.

1 Of which, in the context of this paper, the most significant are the General Agreement on Tariffs andTrade 1994, the General Agreement on Trade in Services, the Agreement on Agriculture, and theAgreement on Textiles and Clothing. Significant successor plurilateral agreements include the Agreementon Basic Telecommunications Services, the Agreement on Government Procurement, and the MinisterialAgreement on Trade in Information Technology Products.

2 L A B O R M A R K E T A D J U S T M E N T S

Table 1-1U.S. Government Bilateral Free Trade Agreements

EnactedNegotiated,

Not Yet Enacted Negotiations Underway

Country Income Country Income Country Income

1 9 8 0 S

Israel (1985)

Canada (1985)

HI

HI

1 9 9 0 S

Mexico (1993) UM

2 0 0 0 S

Jordan (2000)

Chile (2003)

Singapore (2003)

Australia (2004)

Morocco (2006)

El Salvador (2006)

Honduras (2006)

Nicaragua (2006)

LM

UM

HI

HI

LM

LM

LM

Low

Bahrain (2004)

Costa Rica (2005)

Dominican Republic (2005)

Guatemala (2005)

Peru (2005)

Oman (2006)

Colombia (2006)

HI

UM

LM

LM

LM

UM

LM

Ecuador

Panama

Botswana

Lesotho

Malaysia

Namibia

Republic of Korea

South Africa

Swaziland

Thailand

LM

UM

UM

Low

UM

LM

HI

UM

LM

LM

Note: HI—High-income country, UM—Upper-middle-income country, LM—Lower-middle-income country, Low—Low-incomecountry, according to World Bank 2006 World Development Report categorization. Countries in boldface are USAID presencecountries or countries covered by USAID regional programs.

At the labor market level, due to changes in market structure and geography, institutions,policies for pensions, hiring/firing, roles of labor unions, social safety nets, geographicmobility of workers, and incentives to invest in labor or enforce labor regulations.

At the worker level, either the individual or household, as individuals make choices aboutworkforce participation and choices about investing in their human capital in response toshifts in demand for their labor/skills.

These shifts in turn induce related changes

As governments seek to improve revenue collection or introduce fiscal reforms tocompensate for lost trade tax revenues or limit new opportunities for corruption;

As producers seek flexibility in labor markets so they can hire and fire more freely inresponse to demands for labor; and

As schools and training programs seek to supply the skills needed in the workforce.

I N T R O D U C T I O N 3

Trade Capacity Building and AdjustmentAlthough trade adjustment is considered an aspect of trade capacity building, it has not beenfeatured prominently in definitions of trade capacity building2or in most programmatic decisionsrelating to support for countries undergoing trade liberalization.3 This is beginning to change—perhaps in part because of the political realities of trade negotiations. Opposition to tradeliberalization comes most often from interest groups who fear heightened competition in theirlong-sheltered home markets. For political leaders to undertake trade reforms, they need torespond to these concerns with facts about the adjustment process, and often with programs tofacilitate it. In recognition of this, the World Bank and IMF, the WTO, and several G8 countrieshave committed to large increases in “Aid for Trade.” A 2005 World Bank/IMF paper definesAid for Trade as “assistance by the international community to help countries address supply-sideconstraints to their participation in international markets and to cope with transitional adjustmentcosts from liberalization” (emphasis added).4

Labor Market and Worker AdjustmentThe labor market is the economic arena in which human knowledge and skills—in the form ofworkers’ labor—are allocated to productive activities. Adjustments in labor markets involve thefollowing parties:

The private sector, as firms reorient strategies and resources in response to newopportunities;

Workers, as individuals and households respond to changes in the demand for their labor; and

Policymakers, as governments seek to protect and expand public welfare in the wake ofredistributed economic activity and employment.

Assistance to facilitate trade-related labor market adjustments aims to

Recognize and minimize adjustment costs for the most vulnerable members of society;

Ensure that education and training programs provide workers with the skills that the labormarket demands;

Safeguard workers’ rights and safety while improving labor market flexibility; and

Create policies and institutions that foster growth in employment, wages, and output.

2 The WTO and OECD maintain a trade capacity building database that defines 26 categories of TCBassistance. USAID maintains a separate database that lists over thirty TCB assistance categories. Neitherdatabase lists adjustment assistance as a distinct category.

3 We use the terms “trade liberalization” and “trade reform” interchangeably in this paper.4 Doha Development Agenda and Aid for Trade. IMF/World Bank, September 19, 2005.

http://siteresources.worldbank.org/DEVCOMMINT/Documentation/20651864/DC2005-0016(E)-Trade.pdf, accessed April 7, 2006.


SCOPE, OVERVIEW, AND OBJECTIVES OF THIS PAPERThe purpose of this paper is to strengthen USAID’s ability to help developing countries meet thechallenges posed by trade-related labor market adjustments. We therefore focus on theintersection of three issues: trade capacity building, labor, and economic adjustment (Figure 1-1).

Figure 1-1Focus of Trade-Related Labor Adjustment Assistance

This focus orients the conceptual framework presented in Chapter 2, our review of the empiricalevidence on the trade reform and labor adjustment process in Chapter 3, our survey of donorassistance in Chapter 4, and our recommendations in Chapter 5 for USAID to address theknowledge and practice gaps identified in earlier chapters. Specific objectives of this paperinclude the following:

To improve USAID’s understanding of how trade liberalization may affect labor markets,including the circumstances and contexts that facilitate or inhibit adjustment.

To broaden USAID’s awareness of existing programs that help facilitate trade-related andother labor transition processes.

To identify knowledge gaps, both with respect to analysis of labor market transitions, andprogrammatic best practices.

To inform USAID of potential implementing partners.

Appendix A presents a technical note on labor market indicators; Appendix B lists sourcesconsulted; Appendix C lists contacts made by the researchers; and Appendix D is an annotatedlist of institutions that could be included in a broad community of practice.

Trade Capacity Building

EconomicAdjustment Labor Market

Trade–related Labor AdjustmentPrograms to (1) improve economy-wide labor market outcomes aftertrade liberalization, and (2) easeadjustment for workers andcommunities

“Global integration is byits nature disruptive”(Birdsall 2004, 301).

2. Conceptual Framework andDeveloping Country ContextThis chapter outlines a simple conceptual framework of labor market adjustments to tradeliberalization and describes special features of labor markets in developing countries that affectlabor market adjustment.

CONCEPTUAL FRAMEWORKThe purpose of trade reform is to improve welfare. In the short term, the objective is to reallocateresources more efficiently, increase choice, and reduce costs for consumers and producers. In thelonger-term, the aim is to stimulate growth in output, employment, and wages. If the policy issuccessful, these benefits far outweigh short-term adjustment costs.

Though labor markets adjust in many ways to trade liberalization, there is a common logic to theprocess, which provides a useful conceptual framework here. In essence, the adjustment to tradeliberalization can be characterized by three stages (see Figure 1-1):

An initial trade “shock” to supply and demand conditionsin product markets due to reductions in tariffs or nontariffbarriers in the home country or a significant tradingpartner;

Short-term adjustments resulting from changes in the demand for labor as a result of the tradeshock;5

Longer-term adjustments in both labor demand and supply in response to incentives createdby trade reform.

Each stage is conditioned by structural and institutional factors that reflect particular conditions ineach country, including the structure of the overall economy and its labor force, labor marketinstitutions, the business-enabling environment, labor market policies, and cultural factors. These

5 “Short term” is defined here as the period in which the capital stock, the composition of the labor force(including skills), and the set of technologies can be taken as given. This is essentially the assumption in“comparative static” calculations of the general equilibrium impact of trade liberalization. In calendar terms,significant changes in the “given” conditions generally require at least one year to emerge. For presentpurposes we refer to such changes as “longer-term adjustments.” They can also be called “dynamic”responses, in contrast to the comparative static effects.


underlying factors evolve partly because of the influence of trade liberalization. In many cases,countries can ease labor market adjustment to trade reform by removing structural and institutionalimpediments.

Figure 2-1Adjustment to Trade Liberalization

Initial Trade ShockThe impact of trade reform is first felt in product markets, where trade reform affects both supplyand demand. In the process, some groups benefit while others face costs and uncertainties:

Exporters and their upstream suppliers gain greater access to global markets. However,domestic consumers of exported goods may face lower domestic supply and higher prices.

Producers using imported inputs benefit from lower costs. Correspondingly, upstream suppliersmay lose sales or face lower prices because of stronger import competition.

Consumers of imported goods benefit when lowered trade barriers reduce domestic prices andbring better products to the market. Lower prices, in turn, produce ripple effects as consumers,in aggregate, have more purchasing power to spend on other goods and services.

Producers of tradable goods for the local market face tougher domestic market conditions whenimports come in more freely. Heightened competition in the domestic market may forcebusinesses to close or to produce different products.

Short-term AdjustmentsIn the short term, trade liberalization affects labor markets mainly through changes in the deriveddemand for labor, which mirror the impact of trade shocks in the product markets. Shifts in thedemand for labor affect employment, wages, working conditions, and job security. The winnersinclude workers in industries that produce for export, and industries that gain a cost advantage from

Initial Trade Shockto product markets

Short-term labor market adjustments

• Shifts in labor demand

• Impacts on jobs and wages

Longer-term labor market adjustments

• Labor demand responses:investment, productivity

• Labor supply responses:education, training, migration

Structural & institutional factors

•Economic structure

• Labor force structure

• Labor market institutions

•Business enablingenvironment- Policies, laws &

regulations- Infrastructure- Quality of governance

•Cultural factors

CO N C E P T U A L F R A M E W O R K A N D C O N T E X T 7

Though the short- and long-termbenefits of trade reformgenerally outweigh the costs,those costs often weigh heavilyin the policy process.

trade liberalization. The losers include workers in industries that face increased competition fromimports.

In well-functioning labor markets, most workers who lose jobs or income opportunities quicklymove to new sources of livelihood at comparable wages. The adverse effects are largely attenuated,although workers still bear adjustment costs such as temporary loss of income and expenses relatedto job searches, relocation, or retraining. The adjustment burden can be most difficult for the verypoor, and for women, who have more childcare and household responsibilities (Gammage et al.2002).

In many countries, however, labor markets are plagued by rigidities that prevent displaced workersfrom obtaining new sources of livelihood. Rigidities arise from poor macroeconomic policies,burdensome labor regulations, a mismatch of skills, geographic immobility, weak job-searchincentives resulting from poorly designed safety nets, information asymmetries, nonmarket wage-setting mechanisms, and weak institutions for matching workers to jobs. Labor markets thereforemay not adjust smoothly to shifts in labor demand. Depending on conditions, jobs in favoredsectors may expand slowly, whereas job losses maybe swift.

As a result, short-term adjustment to trade reformmay entail serious economic and social costs forcertain businesses, workers, and consumers. Thecosts are often highly visible, whereas the benefitscan be diffuse and less readily apparent. Consequently, the short-term costs often take center stagein the media and in politics—especially when affected groups are represented by politicallypowerful and media-savvy interest groups, such as long-sheltered industries and labor unions.

Longer-term AdjustmentsThe degree to which trade reform stimulates output, employment, and wages depends on theresponse on both the demand and supply sides of the labor market. On the demand side, thebenefits of reform depend on the private sector’s investment response. If entrepreneurs and foreigninvestors see reforms as producing substantial market opportunities, investment flows are likely toreflect that assessment. Whether such investment creates jobs is in part a function of the laborintensity of the sectors into which it flows: labor-intensive investments can create jobs with littleeffect on productivity or wages, whereas capital- or skill-intensive investments may lead to“jobless growth” and opportunities for only a small subset of workers. Successful trade reformstimulates an investment response sufficient to generate both job growth and improved laborproductivity. A hospitable policy environment ensures that taxes, subsidies, or regulations do notdistort the demand for labor.

Changes in labor supply also affect the impact of trade reform. As work opportunities arise,workers have an incentive to invest in education and training to get better jobs. Incentives,however, are diluted by market imperfections, such as lack of information on job openings, lack offunds to invest in training, and discrimination. Employers face diluted incentives to invest in


training because they cannot count on capturing the benefits: workers, once trained, may leave forother jobs. Thus, market incentives alone may not induce an efficient supply response.

INFLUENTIAL STRUCTURAL AND INSTITUTIONAL FACTORSStructural and institutional factors shape labor market adjustments in the short and longer term.These factors include the initial structure of the economy and labor force; policies and institutionsthat influence labor demand, labor supply, and labor reallocation; and even sociocultural factorssuch as attitudes about the role of women and children.

The impact of trade reform on labor demand depends on the business-enabling environment, whichincludes economic policies, market-supporting laws and regulations, the quality of governance, anddomestic security. Many of these factors influence the dynamics of labor demand indirectly viatheir effects on the costs and risks that firms face when creating jobs. Government policies andinstitutions affect the labor supply response through education and training programs, social safetynets, and other policies that affect the returns to investment in education and skills.

In the labor market itself, pertinent factors include the structure of the labor force (by education,skill level, age, gender, poverty status, and location), labor market segmentation, mechanisms forwage determination in various sectors, patterns of job discrimination, the strength of labor unions,labor codes, and mechanisms for dispute resolution. Also important are laws and regulations onemployment contracts, work hours, paid leave (maternity and other), minimum wages, protectionof young workers, gender equity, worker associations, collective bargaining, strikes and lockouts,and dispute settlement. In many countries, labor market policies include unemployment insurance;mandated health schemes; pension requirements; skills certification; jobs programs (includingprograms for women, youth, the disabled, the poor); and employment search services.6

Of course, these structural and institutional conditions evolve. Indeed, some changes may beinfluenced by the labor market outcomes from trade reform; hence the feedback arrow in Figure2-1. The feedback can be driven by a pursuit of complementary reforms to enhance the benefits ormitigate the costs of trade liberalization. Or it can be driven by political pressures that arise whentrade reform becomes a lightning rod for special interest pleading. At worst, these politicalpressures can block or reverse trade reforms that are vital for economic transformation and growth.At best, they compel governments and donors to understand and respond to genuine adjustmentcosts.

LABOR MARKETS IN DEVELOPING COUNTRIESAlthough the conceptual framework above applies generally, the labor market in many developingcountries—particularly low-income countries and fragile and post-conflict states— have specialfeatures that affect the adjustment to trade reform.

6 International labor conventions concluded under the auspices of the ILO may also govern markets. SeeILO websites on national labor laws (www.ilo.org/public/english/dialogue/ifpdial/ll/observatory/profiles/index.htm) and international labor standards (www.ilo.org/public/english/standards/norm/introduction/what.htm).

CO N C E P T U A L F R A M E W O R K A N D C O N T E X T 9

Many poor countries have “dualistic” labor markets (Fields 2004), in which a minority of workershave regular formal sector jobs, while a majority works in the informal sector. Women are oftendisproportionately engaged in informal sector work, and in certain occupations in the informalsector (Chen et al., 2005), where wages are generally set by market forces, anchored by incomelevels in subsistence agriculture. In the formal sector, wage determinants can differ by industry oroccupation. Wages are driven by market conditions in many cases, but also by efficiency wageconsiderations,7 industry-wide negotiations, collective bargaining, or implicit rent-sharingarrangements between employers and workers in industries lacking effective competition.

Poor, dualistic economies tend to have large pools of unskilled labor. Consequently, shifts in labordemand due to trade liberalization (or any other shock) primarily affect employment, not the realwage, in market segments where wages are competitively determined. Given the large pool ofunskilled workers and rapidly growing labor force in many countries,8 a very large change in labordemand in the formal sector would be required to alter the competitive wage for unskilled labor,either positively or negatively. By the same token, shocks or innovations that increase (or decrease)the productivity of labor in household agriculture are likely to have a corresponding effect on thewage for unskilled labor throughout the economy.9 The supply of skilled workers tends to be farless responsive to changes in demand; hence, in this segment of the market, labor demand shocksmay lead to substantial changes in the real wage.

Another salient factor, as argued by Stiglitz and Charlton (2004, 24), is that the cost of adjustmentto trade liberalization is especially onerous in poor countries. The main reason is simply that verypoor workers face the greatest suffering from any loss of livelihood. In addition, many developingcountries have high rates of unemployment and underemployment, which limit prospects for fullyreplacing lost income. Poor countries also lack formal institutions to help workers bear the cost of atransitional job loss, such as unemployment insurance or social safety nets. These considerationssuggest that any adverse effects of trade reform merit special weight in poor countries—and thatresulting improvements in employment or wages for poor workers have an especially high value.

7 An “efficiency wage” is a wage above the market equilibrium cost of labor, which profit-maximizingemployers pay to gain the benefit of higher productivity, through the impact of better wages on factors suchas motivation, turnover, absenteeism, and health.

8 The labor force in sub-Saharan Africa is growing by 2.4 percent per year (World Development Indicators2005). In many countries the resulting “youth bulge” is a policy concern. In contrast, most former Soviet-bloc countries have a stagnant labor force and face serious problems sustaining pension benefits for an agingpopulation. This is one of many structural sources of labor market heterogeneity among developingcountries.

9 This is a basic lesson of the classical model of dualistic development formulated by W. Arthur Lewis andelaborated by Gustav Ranis and John Fei.

Trade policy is just one ofmany factors that affect labormarket dynamics—and oftena minor one.

Skewed or piecemealinformation on the impact oftrade reform may underminepublic support for the reform.

3. Empirical Evidence on Trade-Induced Labor AdjustmentsLabor market adjustments are complex and context-specific. This observation is useful inguarding against simplistic conclusions, but is otherwise not very helpful. This chapter reviewswhat we do know about the impact of trade reform on labor markets and about the adjustmentprocess in those markets. We first discuss methods for collecting empirical evidence, thensurveys findings, presenting evidence regarding short-term and longer-term adjustmentseparately.

DATA SOURCES AND EMPIRICAL METHODSIn the wake of trade reforms, one would hope to observe healthy labor market dynamics throughstatistics such as

Net job creation in the formal sector, Increasing labor force participation, Declining unemployment, Rising real wages and labor incomes, Rising labor productivity, Declining poverty, and Improved gender equity—in all the above indicators.

Unfortunately, the availability of labor market data is a major problem in many countries,especially those with low incomes and weak state capacity. Demographic estimates of the laborforce are available for most countries. Regular reports on employment, real wages, labor incomes,unemployment, and productivity are available for many middle-income countries, but few low-income countries. Gender disaggregation of key indicators is often missing. And povertystatistics, in most developing countries, are far fromtimely.

While it is very important to monitor trends in basiclabor market statistics, before-and-after changes do notactually show the impact of trade liberalization. Theproblem is that trade policy is just one of many factors affecting the labor market dynamics, andoften a minor one. Markets continually adjust to a variety of shocks stemming from newtechnology, product innovation, shifting consumer tastes and demographics, other policymeasures, political events, and conditions of nature. Consequently, one may observe negative

E M P I R I C A L E V I D E N C E 11

changes in the labor market data even if the trade reform has a very positive effect— or viceversa.

To evaluate the impact of trade liberalization, observed outcomes must be compared with anestimate of what would have happened without liberalization. Approaches for solving thisproblem include consulting or undertaking (1) econometric studies based on microeconomic datafor particular countries, (2) international cross-section econometric analyses, (3) computablegeneral equilibrium (CGE) models, and (4) careful case studies.

The best quality of information on labor market adjustments to trade liberalization comes fromeconometric studies using microeconomic data for specific countries. Most of this research isbased on enterprise data, organized by sector or by firm. Inferences about the impact of tradereform are derived by taking advantage of the fact that exposure to trade reform differs acrossindustries and firms in well-defined and measurable ways. This is a relatively new area forresearch, and not many studies are available for developing countries. In addition, studies thathave been published focus on formal sector manufacturing and do not shed much light on otherlabor adjustments.

International cross-section data sets are widely used to identify empirical regularities in thedevelopment process. This approach has limited applicability for studying labor marketadjustments because internationally comparable data on employment or wages are so sparse.Furthermore, many economists dismiss the validity of results derived from pooling heterogeneousgroups of countries. Applications to trade reform are even more controversial because oftechnical difficulties in quantifying trade reform, and questions about whether trade reform is acause or a result of other economic changes.10

CGE models have become a standard tool for quantifying the economy-wide impact of tradepolicy changes. The models have been widely applied to unilateral reforms, bilateral and regionaltrade agreements, and global trade agreements, including the Doha negotiations.11 In essence,CGE models provide economic projections based on a theoretical specification of how marketsadjust, combined with detailed production, trade and other economic data. For this reason, themodels are often referred to as “quasi-empirical.” Unfortunately, most CGE applications to trade

10 Trade policy is not an independent variable if trade reforms are driven or influenced by other policychanges or trends in the economy. In their outstanding review of empirical evidence on how trade affectspoverty, Winters, McCulloch, and McKay remark that “the weight borne by such studies is remarkable,particularly since so many economists profess to distrust them” (2004, 78).

11 CGE models have been used for quantitative analysis of the general equilibrium effects of tradereforms by the World Bank, the U.S. International Trade Commission, the UNDP, the International FoodPolicy Research Institute, the Institute for International Economics, and many others. Purdue University’sGlobal Trade Analysis Project (GTAP) model is the standard bearer, because of the great attention devotedto compiling detailed data on global trade flows as an empirical foundation for their model.


policy have a simplistic specification of labor markets and gloss over labor transition issues.12

Nonetheless, some CGE results are of interest for the synthesis of empirical evidence.

Case studies of countries or industries also provide a rich body of evidence. But unless theanalysis is done carefully, these studies may fail to establish that observed outcomes are the resultof trade reforms, as opposed to other factors. Similarly, it is often difficult to extract generalinsights from specific cases.

SHORT-TERM ADJUSTMENTS IN THE LABOR MARKETWe begin our discussion of short-term adjustments by examining effects on employment andwages—the primary points of concern for many critics of trade reform. We then review short-term effects in other areas, including consumption, labor regulations, gender, child labor, and thespatial aspects of adjustment. We close with a discussion of the short-term, economy-wide impactof liberalization.

Employment and WagesTrade reform’s short-term effects on employment and wages are a central concern ofpolicymakers, workers, and globalization critics. This section summarizes the evidence on theseeffects.

Aggregate Employment and Wages: Diverse ImpactsMost of the evidence on trade reform’s effects on aggregate employment and wages is drawnfrom limited data on formal jobs in manufacturing. The main finding is that there are differentoutcomes in different contexts. A few examples illustrate the point:

Lower wages, not much impact on employment. A study using plant-level data in Mexicoshowed that pre-NAFTA trade reforms reduced the average real wage by 3–4 percent, withno significant effect on aggregate employment. However, wages did drop up to 14 percent insectors that had been most protected.13

Not much impact on employment or wages. A recent World Bank study on the labor marketimpact of trade reforms in the 1980s in Indonesia, Korea, and Thailand found no significantchanges in the trend for real wages or employment, either in the aggregate or by sectoraccording to trade sensitivity. The study explains this as a consequence of flexible labormarkets, which facilitated smooth labor transitions.14

Positive effects on employment and wages. An ILO review concludes that “in thosedeveloping economies which emerged as important exporters of manufactures to

12 USAID’s GATE Project, described more fully in the section Trade and Gender, will undertake genderdisaggregation of CGE models in Bangladesh and South Africa to examine the differential effect of tradeliberalization on male- and female-headed households.

13 Harrison and Hanson (1999, 141), citing earlier research. These early papers are still prominently cited,which reflects the paucity of more recent research on these issues.

14 The Asian examples are from Bourguignon and Goh (2004).


Empirical studies suggestthat trade liberalization has asmall impact on aggregateemployment and wages.

Liberalization causes “jobchurning” within particularsectors, but surprisinglysmall reallocation of laborbetween sectors.

industrialized countries, growth of trade had a large positive effect on manufacturingemployment and wages,” particularly in Asia; however, a large majority of developingcountries have been “unable to benefit from trade liberalization.” A recent World Bankdocument likewise reports that trade liberalization has a large positive effect on employmentin countries that attract foreign direct investment (FDI), except in the mineral sector, butnegligible effects otherwise.15

To the extent that empirical studies do find an impact onaggregate employment and wages, it is usually small.However, results must be treated with caution becausethey are based largely on evidence from the formalmanufacturing sector, which is not the source oflivelihood for most workers in developing countries. Inaddition, most of the evidence is from middle-income countries, where one finds the best data.Still, this evidence helps to inform the controversy on trade reform, which often centers onisolated examples of “deindustrialization” in highly protected sectors. It is useful to haveempirical evidence showing that these examples are not the norm. At the same time, the evidencedoes not give much comfort to those expecting uniformly positive effects on employment andwages.

Distribution of Employment: Big Impacts within Particular SectorsMany studies find surprisingly little sign that trade liberalization causes a significant reallocationof labor across sectors. Yet it does cause substantial job churning—hiring and firing—withinsectors, through a reallocation of labor from less tomore competitive firms, and from restructuring ofenterprises. In the process, many workers do lose theirjobs, even if the employment effect does not show up inaggregate statistics.

There are many examples of huge and persistent jobimpacts (positive or negative) within particular sectors. For example, Bangladesh experienced atenfold increase in garment sector employment over the past 15 years; in contrast, Zambia lostthousands of jobs when its inefficient garment industry collapsed as a direct result of tradeliberalization. Both countries suffered concurrent declines in overall formal sector employment,though for reasons other than trade reform (de Cordoba and Laird 2005, xxvii and xxx). InZambia, the loss of formal jobs in garment production was accompanied by extensive job creationin the informal sector, although at lower wages (Exhibit 3-1).

15 The ILO results are from Ghose (2000, 34); the FDI citation is from an issues paper presented to aWorld Bank workshop on labor markets (World Bank 2005a, 8).


Trade liberalization increaseswage inequality by increasingthe premium for skills. . .although rising wageinequality does not mean thatunskilled workers are gettingpoorer.

Exhibit 3-1Zambia’s Garment Industry: Collapse and Restructuring

Zambia offers a well-substantiated case of“deindustrialization” in the wake of trade reforms and

other structural adjustments implemented in the early

1990s. Between 1980 and 2003, formal sectoremployment fell from 23 percent to 8 percent of the

total labor force. The garment sector was hit especially

hard. With the elimination of exchange controls—which had a far greater impact than tariff reductions—

imports of second-hand clothing jumped six-fold

between 1990 and 1993. By 1993, 51 of 72 clothingenterprises had shut down. By the mid-1990s, “the

domestic garment industry had all but disappeared”

(Hansen 2000, 234). Perhaps 10,000 jobs in the formalsector were lost.

Usually that is the end of the story. But the full picture

is more complex. Local garment production had beenextremely inefficient because of high tariff barriers and

exchange controls, at the expense of local consumers.

Imports of second-hand clothing (salaula, locally)

reduced the price of reasonably good quality clothing

by as much as 90 percent. Thus, the market adjustment

boosted real incomes for millions of poor consumers.

Liberalization of the salaula trade also kindled rapid

job growth in the informal sector. In just two Lusaka

markets, some 2,500 traders were dealing in salaula by

1995. Many thousands of jobs were also created in

small -scale transportation and warehousing, while

tailoring services enjoyed a boom because of the

demand for alterations.

To be sure, the garment workers who lost jobs in

Zambia because of the reform program faced critical

adjustment problems. In addition, most of the informal

sector jobs pay minimal wages and offer no job

protection. On balance, however, this is not a simple

story of trade reform causing industrial disaster.

SOURCES: Hansen (2000); Salem (2003); McCulloch, Baulch and Cherel-Robson (2003).

The example of Zambia demonstrates the need to understand the linkage between the formal andinformal labor markets. Goldberg and Pavcnik review the research and find some evidence thattrade reform leads to a higher probability of working in the informal sector. They emphasize,though, that the evidence is not robust and that mixed findings may be due to institutional factorsthat vary across countries.16

Wages: Increasing Inequality and a HigherPremium for SkillsOne of the strongest conclusions in the empirical literature isthat trade liberalization tends to increase wage inequality,primarily by increasing the wage premium for skills. Thisdirectly contradicts a basic prediction of traditionalneoclassical trade theory—that lowering trade barriers willreduce wage differentials in poorer countries by increasingthe demand for unskilled labor-intensive products, relative tohigh-skilled labor- and/or capital-intensive goods.

16 Goldberg and Pavcnik (2004, 249 and 264). Hoekman and Winters (2005, 27) also review thisliterature and reach a similar conclusion: there is little evidence that trade liberalization has increasedinformal employment, except in countries with severe labor market rigidity.


The main explanation for this anomaly is that the traditional theory examines static adjustments,whereas globalization stimulates dynamic innovations that increase the relative demand for skills(Feenstra and Hanson 2001). This proposition has strong empirical support, especially incountries where liberalization stimulates FDI inflows. Another likely cause is the increasedparticipation of China, India, and Vietnam in the global trading system. These countries alteredpatterns of comparative advantage by bringing huge new supplies of low-cost, unskilled labor tothe global stage. Many countries that once held an advantage in unskilled labor-intensive productsnow appear better positioned to compete in resource-based products. This analysis appliesespecially to Latin America, the focus of much of the empirical research. Finally, the traditionaltheory did not take into account the fact that many developing countries heavily protectedindustries that use unskilled labor intensively, making this segment of the labor market mostvulnerable to the adverse effects of trade reform.

The rise in wage inequality does not mean that unskilled workers are getting poorer. On thecontrary, Harrison (2005) finds that in a variety of contexts, ranging from Poland to India toColombia, “exporting activities are associated with increasing incomes for the unskilled and thepoor.” Likewise, Winters, McCullough, and McKay find that widespread concerns about tradehaving “generally adverse effects on the employment or wages of poor people…are not wellfounded” (2004, 107).

Furthermore, there is an important exception to the tendency toward wage inequality: in the1970s and 1980s, trade liberalization led to a decline in wage inequality in the Asian Tigereconomies. These reforms, of course, occurred before the outward-looking reforms in China,India, and Vietnam. The Asian Tigers also had flexible labor markets, which favored a broadlybased increase in wages from strong export growth. Perhaps most important, these countriesinvested enormously in education; the rapid increase in supply of skilled workers mitigated thetendency toward greater wage inequality.

A careful study in Brazil by Arbache (2003) highlights the importance of education in mitigatingadverse effects. Arbache found that trade liberalization caused wages to decline in the traded andnontraded goods sectors, but contemporaneous gains in education fully offset the negative effectof trade reform. As a result, average wages did not actually decline.

Although these studies all focused on urban, formal sector workers, trade reform likely hassubstantial effects on incomes in the rural economy and the informal sector. However, empiricalevidence is scant at present.17 Different segments of the rural economy may be affected indifferent ways: for example, Harrison (2004, 8) cites evidence that smaller corn farmers inMexico suffered large income losses as a result of NAFTA, while larger farmers gained—anotherreminder of the complexity of the adjustment process (see Exhibit 3-2). A priori, for unskilled

17 New research on trade reform’s effects on rural and informal sector incomes is forthcoming forat least one country - Mexico. See Juan M. Rivera, Scott Whiteford and Manuel Chavez, eds., TheImpact of NAFTA on Small Producers in Mexico --Prospects for Change. University of ScrantonPress (forthcoming).


rural labor’s income to increase, there would need to be prolonged, rapid growth in labor demand(to pull up the market wage) or increased productivity in small-scale farming (to push up themarket wage). Trade reform can stimulate either of these adjustments, but only in the longer term.

Exhibit 3-2NAFTA and Effects on Mexican Agricultural Labor

The North American Free Trade Agreement(NAFTA) between the United States, Mexico, and

Canada came into effect on January 1, 1994.

Mexico’s experience with NAFTA is frequently citedas evidence of the negative impact of trade

liberalization on labor. Value added in Mexican

agriculture fell from $32 billion in 1993 to $25billion ten years later, while employment in rural

agriculture declined from 8.1 million to 6.8 million.

Overall, however, the number of employed increasedby more than 8 million, while the percentage of

employed among the working-age population rose

from 84 to almost 98 percent, and employment grewat an average rate of 3.3 percent per year,

despite the 1995 and 2001 recessions. New jobs were

created in agro-processing, especially for women.

Employment in manufacturing, commerce, and

construction also expanded, and out-migration may

have also absorbed displaced agricultural labor.

Gary Hufbauer and Jeffrey Schott note that “Since

agriculture contributed only 4 percent of Mexican

GDP in 2003, it seems fairly certain that national

gains to Mexico from trade liberalization will

ultimately swamp income losses in the agricultural

sector. Nevertheless, the adjustment costs are both

real and painful, particularly to affected farms and

communities” (2005, 288–289).

SOURCES: Esquivel et al. (2003); Wodon et al.(2003); Lederman, Maloney, and Serven (2003); Polaski (2003); White, Salas, andGammage (2003); Rosenzweig (2004); Hufbauer and Schott (2005).

Workers’ Adjustment Paths: A Lack of Good DataThe evidence just examined shows that aggregate employment effects and inter-sectorreallocations are often small. Nonetheless, trade reform does cause the loss of some livelihoods;in some cases the losses may be widespread.18 The resulting burden on affected workers can beonerous, unless they find good new jobs or income sources quickly. What, then, do we actuallyknow about the “adjustment paths” of workers who lose jobs or livelihoods as a result of tradeliberalization in developing countries? How quickly do they find new jobs or income-generatingactivities, and how do their new wages and working conditions compare to their old ones? Whatdetermines whether workers recover quickly or not?

The simple answer is: we do not know much. Getting solid information at the individual levelrequires data from a sequence of household surveys spanning major liberalization events, ortracking surveys that document the transition experience of workers affected by trade reforms. Afew studies have probed this issue by matching household survey data with information on theextent to which sectors of employment are affected by trade reform between the survey years.

18 In one striking example, the ILO (2004, 19) cites a loss of nearly 100,000 textile jobs in Lodz, Poland,due mainly to competition from Asia.


Bourguignon and Gho (2004) examine data for Indonesia, Korea, and Thailand in the decadebefore the Asian crisis. They find no significant trade-related differences in employment flows,worker vulnerability, or wage trends across sectors, despite substantial reductions in tradebarriers. They also cite a study on Mexico and Argentina by Arongo and Maloney (2002) whichfound that workers in trade-sensitive industries had a slightly elevated incidence of job separationduring periods of trade reform, but without lasting effects. Unfortunately, these carefulmicroeconomic studies cover only a few middle-income countries.

Research on the relationship between trade reform and unemployment provides indirect evidenceon whether displaced workers find new jobs. The results are mixed. Some studies show strongadverse effects, some show no significant effects at all, and some show strong positive effects.For example, on the positive side, a 1999 survey of more than 50 other studies on tradeliberalization found that “the adjustment costs associated with transitional unemployment are nothigh and that unemployment durations are generally quite short,” while also noting that theevidence was not very robust (Matusz and Tarr 1999, in Winters, McCullough, and McKay 2004,102). On the negative side, a leading labor market expert at the World Bank has pointed out thatunemployment rates in Chile, Mauritius, Poland, and Sri Lanka rose to double digits followingmajor liberalization episodes, and remained at very high levels for more than a decade, despitethe fact that these countries are “success stories in their regions” (Rama 2003, 18).

Overall, the empirical record on adjustment paths is more useful for identifying knowledge gapsthan for illuminating the adjustment process. There is a clear need for better microeconomic dataand more studies covering a wider range of countries.

Safety Nets: Costly but Politically UsefulSafety net programs can ease transitions for workers who lose jobs and income in the wake ofliberalization. Generous programs, however, undermine the incentive to find work. This wasapparent in some Eastern European countries in the 1990s (Rutkowski and Scarpetta 2005;O’Leary 2000). At the other extreme, very poor countries cannot afford effective welfareprograms covering any substantial number of workers; in any case, other vulnerable groups areeven needier than displaced but able-bodied workers.

There is no reason to single out workers affected by trade reform for safety net benefits, except asa tactic to overcome political barriers to reforms. Labor market churning is entirely normal in amarket economy. Trade is just one of many economic shocks that create job losses for particularindustries, firms, and workers—often a very minor one. Yet trade-specific safety net benefits maybe useful when trade reform’s “losers” are politically powerful (as is often the case).

Consumption Effects: Scant EvidenceTrade liberalization also affects workers via consumption channels. First, workers benefit from again in real income to the extent that trade reform reduces the price of goods they consume(known in economics as “the consumption effect”). Second, workers and their families respond tothis rise in real income by spending more on other goods and services; this stimulates demand for


Well-intentioned butburdensome labor codesdiscourage investment andjob creation.

labor in many other sectors, including those not directly influenced by the change in trade policy(“the expenditure linkage effect”).

Goldberg and Pavcnik (2004, 258) report some interesting results on the consumption effect,while stating that it “has been mostly neglected in empirical work by trade economists.”19 Theircentral finding is that food prices dominate the consumption effect for poor workers, becausefood accounts for a large share of total spending by the poor. They also find evidence that “themagnitude of the consumption effect is generally much smaller than the magnitude of laborincome effects”(261). This implies that the rural multiplier is driven mainly by direct changes inlabor income, rather than lower prices for consumer goods.

A survey by Winters, McCulloch, and McKay (2004) examines the evidence on expenditurelinkages. Their main finding, based on numerous studies in Asia and Africa, is that poor ruralhouseholds have a high propensity to consume locally produced, nontradable foods. Hence, anextra dollar of real income in rural areas generates a strong “multiplier effect” (i.e. eachadditional dollar of expenditures increases the total income in those areas by much more than onedollar). The increase in income presumably improves rural employment prospects. Unfortunately,this survey gives no indication of the magnitude of this phenomenon.

Burdensome Labor Codes: an Obstacle to AdjustmentMany poor countries have well-intended labor regulations that sharply increase the effective costto employers of hiring unskilled labor. Such labor codes have deep political roots, becauseworkers holding formal sector jobs (the “insiders”) have a strong incentive to push for morebenefits. Yet stringent regulations may discourage job creation, to the disadvantage of workerswho lack formal employment (the “outsiders”).

Evidence from empirical research, including businesssurveys, has shown that highly protective labor standards,if enforced, weaken the investment and job creationresponse to trade liberalization—particularly for industriesthat are labor intensive.20 The 2006 World DevelopmentReport cites India and South Africa as examples ofcountries where stringent labor codes benefit formal sector workers, who tend to be well off bylocal standards, while pushing many other workers into unemployment (South Africa) orunprotected informal sector jobs (India). In many countries, of course, labor codes are not wellenforced. Thus, Botero (2004) finds no significant effects of labor regulations in low-income

19 To be sure, CGE studies on the impact of trade reform inherently incorporate both consumptionchannels; as discussed earlier, these are simulations based on assumptions about market adjustments, not expost evidence about actual impacts. In particular, most CGE studies use assumptions about labor markets.

20 For example, in their study of trade and labor markets in Asia, Hasan and Mitra (2003) find thatcountries or states with less labor market regulation adjust more favorably to trade reform. Similar findingshave been reported for Colombia, Peru, and Eastern Europe (World Development Report for 2005, 151).See also Rutkowski and Scarpetta 2005, 36), and Botero (2004) for an econometric study covering 85countries.


countries, where public administration is weak and enforcement open to “subversion.” InMozambique, however, labor codes have been reported as a serious problem for businesses,despite widespread “subversion,” because of the payoffs required to escape penalties for minortechnical violations.21 The worst of all worlds is to have strong labor codes that discourageinvestment and impair job creation without protecting the intended beneficiaries.

Opponents of trade reform sometimes claim that it systematically erodes workers’ legalprotections and benefits. There is no clear evidence to support this assertion (Goldstein andPavcnik 2004, 245). It is true that once one recognizes the costs that labor codes can impose onworkers (especially the “outsiders”), it makes sense to seek a balance by trimming back the mostonerous regulations. In this sense, there is a grain of truth to the argument about dilution of laborstandards. Nonetheless, the whole point is to benefit workers, broadly, and facilitate more flexibleresponses to trade reform and other shocks.

Gender: More Jobs for Women—and More VulnerabilityTrade reform can affect men and women differently. The Women’s Edge Coalition has prepareda comprehensive review of trade impacts differentiated by gender.22 We present a few of the mostsalient points here.

A number of studies find that female workers are favored in labor-intensive export industries thatexperience rapid job growth after trade reform. This favorable effect is often associated withexport processing zones where labor regulations are less stringent. Several studies also findevidence that trade liberalization reduces the gender wage gap in the formal sector (Rama 2003and 2004).

On the other hand, trade liberalization can increase women’s vulnerability to income and job loss.In poor countries, many women earn their living by growing food crops. An influx of importsmay decrease food prices, thus lowering incomes for households that produce more food thanthey consume.23 Bourguignon and Gho (2004) show that women in Korea, Indonesia, andThailand are more vulnerable than men to job and income loss in the course of labor marketadjustments. Yet the authors conclude that policies to address gender discrimination and women’saccess to education are more important than trade policy for remedying this vulnerability.

Women may be affected both positively and negatively when trade reform causes male migrationfrom rural areas (in response to new, urban job opportunities or lost farm income). There isevidence from countries as different as Mexico and Uganda that this coping mechanism“increased the workloads for women and children remaining behind” (Winters, McCullough, and

21 This is one of the most prominent issues raised in a series of public–private conferences that have beenheld in Mozambique since the mid-1990s.

22 See Gammage et al. (2002) and Gammage, Packman, and Diamond (2005); see “Trade ImpactReview,” http://www.womensedge.org/index.php?option=com_kb&page=articles&articleid=8&Itemid=72.

23 Where women grow and process export crops trade reform can have positive effects on income andstatus, but export crops are usually controlled by men.


Rural and urban workersoften have divergentinterests with respect totrade liberalization.

McKay 2004, 90). At the same time, male migration often provides the women who stay behindan important source of remittance income.

Child Labor: No Consistent Link with TradeThe empirical record does not point to a systematic, causal link between trade reform andincreased child labor. On the contrary, the best evidence shows that “child labor isoverwhelmingly a product of poverty, and most of it takes place in household farms andenterprises that are not directly affected by globalization” (Rama 2003, 32). Increased tradeintegration therefore reduces child labor, albeit indirectly, through its impact on incomes andpoverty. As their incomes rise, families generally opt to remove their children from theworkforce. However, these effects may vary from household to household. For example, inVietnam, rice prices climbed after liberalization. Households that produced more rice than theyconsumed experienced greater real incomes and less child labor. Simultaneously, child laborincreased in “rice deficit” households (those that consumed more rice than they produced). InVietnam, the rice surplus households outnumber the rice deficit ones, but the situation could bereversed in other countries (Goldberg and Pavcnik 2004, 257).24

Spatial Aspects of Short-Term AdjustmentThe adjustment of labor markets to trade reform has important geographical attributes,summarized below.

Rural and urban workers’ interests frequently diverge. In countries where agriculturalactivities have a comparative advantage, the price of domestically produced agriculturalgoods increases after trade liberalization. Rural laborers’ jobs and incomes increase, buturban workers pay more for food. Brazil is an example of such a country. In contrast, in thePhilippines and Malawi, increased agriculturalimports give urban dwellers cheaper food but causefarmers’ incomes to decline (Hoekman and Winters2005, 18). These examples can be generalized acrossthe spectrum of developing countries, depending onthe extent to which agricultural activities werepreviously protected and whether they enjoyed a comparative advantage.

The effects of trade reform diminish with distance from the border. The degree to whichtrade affects prices at distances from the border depends on the quality of the roads, internaltransaction costs, the logistical infrastructure, and the degree of competition in the domestictrading sector (Hoekman and Winters 2005 and others). For example, price effects from tradereform are weaker for farmers and households in the less developed, southern states ofMexico than for those in the more developed northern states (Nicita 2005).

Liberalization may have large effects on particular locales. The city of Lodz, Poland lostnearly 100,000 textile jobs after liberalization, primarily because of competition from Asia

24 See also Edmonds and Pavcnik 2004


(ILO 2004, 19). This is one of many examples of “local economic distress” in the wake oftrade reform (Rutkowski and Scarpetta 2005). Undoubtedly, local economic jackpots are justas numerous, but the losers attract more attention. If labor were highly mobile, then locationeffects would hardly matter. Indeed, many workers do migrate in pursuit of better economicopportunities. But others are geographically immobile. There are many reasons: children totend, personal or family connections, financial constraints, lack of skills to take advantage ofopportunities in new locations, housing problems, insufficient information about jobalternatives, and (in countries with generous safety net programs) weak incentives to relocate.Reduced constraints on migration can improve the balance of benefits and costs from tradereform.

International migration is an important response to trade reform and other economic adjustments;the ensuing remittances are a major source of foreign exchange for the country and an importantsource of income for many poor families. For example, emigration in Jamaica has been helpingdrive down unemployment for 15 years since labor market disruptions caused by a package ofreforms, including trade liberalization. Development economists have been focusing oninternational migration on the grounds that liberalization of global labor markets can deliver fargreater efficiency and welfare gains than further liberalization of trade or capital flows.25 Thisclaim is based on the fact that international wage differentials are far larger than cross-borderdifferences in prices of goods and services, or returns on capital. However, the political, social,and security-related concerns attached to international migration complicate attempts to furtherliberalize it.26

Economy-wide Impacts of Trade LiberalizationThe best sources of information on economy-wide aspects of trade liberalization are studies basedon computable general equilibrium (CGE) models. CGE studies isolate the impact of trade shockswhile holding other policies and structural constraints constant. These studies yield fourreasonably consistent messages:

1. The benefits of better resource allocation and lower import prices outweigh the negativeadjustment costs in nearly every instance, even in the short term. Exceptions occur whenmultilateral liberalization erodes significant trade preferences. For example, Cline (2004)estimates that Mexico will suffer a small overall loss from Doha Round tariff cuts, becausethey will erode NAFTA benefits.

2. Adjustment costs are more highly concentrated than the efficiency benefits; hence,particular groups do suffer significant losses in the adjustment process, as emphasized by deCordoba and Laird (2005).

25 This is a key point in Birdsall, Rodrik, and Subramanian (2005), as well as Stiglitz and Charlton(2004), among others.

26 International labor migration is at least on the table for WTO consideration, as the “Mode 4” form ofservice delivery under the General Agreement on Trade in Services (GATS). However, there has been littlemovement on efforts to liberalize Mode 4 services in the WTO’s current “Doha Round” negotiations.


. . . and the investmentresponse to liberalizationdepends on the quality ofthe investment climate.

Trade reform’s effects onworkers and povertydepend on its success instimulating investment-driven growth. . .

3. For lower-income countries, the greatest welfare effects generally involve farm products.The effects can be positive or negative, depending on the country context. This pointunderscores the need for better data on rural labor markets.

4. The short-term welfare effects of trade reform are relatively small, often less than 1 percentof GDP. For most countries, a once-off gain of 1 percent is just a blip on the growth path. Yeteven this blip, applied globally, can lift millions of people out of poverty. Furthermore, this isthe impact of trade reform alone; the welfare gains are substantially enhanced bycomplementary reforms. Nonetheless, these results reinforce a fundamental point: that thelong-term growth effects of trade liberalization are far more important than the short-termmarket adjustments in delivering gains from trade.

LONGER-TERM ADJUSTMENTS: TRADE, GROWTH, ANDLABOR MARKETSIn the longer term, trade reform’s effects on workers and poverty depend on its success instimulating investment-driven growth. The relationship between trade and growth has been aprominent and controversial research theme in development literature. Winters, McCullough, andMcKay review both the evidence and the critiques in greatdetail. They conclude that establishing a clear causal linkfrom trade reform to growth is difficult, but “the weight ofexperience and evidence seems strongly in that direction”(2004, 78). In particular, they find that many studies show alink from lower trade barriers to higher productivity. At thesame time, they note that higher productivity can lead toemployment rationalization and greater wage inequality (as in Eastern Europe),27 or to net jobcreation and higher incomes for unskilled workers, depending on other conditions in theeconomy.

One point of empirical consensus is that the investment response to trade liberalization dependson complementary structural and institutional factors. In particular, the investment climate (orbusiness enabling environment) largely determines the dynamics of labor demand. Thisencompasses a broad set of policies and institutionalconditions, including macroeconomic stability, exchangerate policy, tax policy, the quality of infrastructure, theprotection of property rights, enforcement of contracts, theadministrative barriers to doing business, access to finance,the risks of crime and civil instability, the quality of theworkforce, and the flexibility of labor regulations. In countries with critical weaknesses in theinvestment climate, reforms to address those problems are essential for achieving strong labormarket outcomes in response to trade liberalization (Andersson et al. 2005).

27 Since 1990, some countries of the former Soviet bloc have encountered high rates of investment andrapid growth, but fairly stagnant employment rates, declining labor force participation rates, andpersistently high unemployment rates (Rutkowski and Scarpetta 2005).


Donors should support datacollection and analysissystems when such systemsmeet demonstrated needs andwhen the recurrent costs aremanageable.

Exchange rate policy also bears special emphasis because it is essentially a financial form of tradepolicy. This is because a real devaluation has the same effect on relative prices and marketincentives as does a uniform tariff on all imports plus a commensurate subsidy on all exports.Thus, a well-managed devaluation can mitigate the adverse effects of trade liberalization(Hoekman and Winters 2005). Exchange rate policy is also important for stimulating aninvestment response. Hoekman and Winters suggest that “failure to choose and maintain arealistic real exchange rate has been one of the main causes of the failure of trade liberalizationsin developing countries” (2005, 5).

Another common concern about the longer-term effect of trade reform on labor markets relates tothe dynamics of comparative advantage. Some poor countries have such a strong comparativeadvantage in primary commodities that foreign demand for their exports puts strong upwardpressure on the value of the local currency. This exchange rate effect can stifle transformationaldevelopment by rendering other productive sectors uncompetitive, including labor-intensivemanufacturing. Nigeria is commonly cited as an example of this “natural resource trap.” Thisunfavorable dynamic adjustment, in terms of job creation, is typically associated with mineralwealth but can also arise from having a strong comparative advantage in agricultural products orfrom large net inflows of foreign aid, foreign investment, or worker remittances.

In addition to its effects on labor demand, trade reform stimulates dynamic adjustments in laborsupply, particularly by creating incentives for workers and employers to invest in education andtraining. A review by Martin Rama (2003) of more than 300 studies shows that greater opennessincreases the returns to education, and that these wage differentials do indeed stimulate skillformation. In the case of the Asian Tiger economies, massive investments in education (for manyreasons, not just trade reform) led to a more skilled labor force, higher productivity, and higherincomes across the board.

KNOWLEDGE GAPSThe synthesis above yields important insights into labor market adjustments to trade reform indeveloping countries. Yet it also reveals the huge amount we do not know.

To a large extent, knowledge gaps are attributable to data problems, and associated limitations incountry and sector coverage in the empirical literature. Many countries lack regular and timelystatistics on basic labor market conditions such as employment, unemployment, and wages. Fewlow-income countries regularly collect information on underemployment, informal employment,or the rural labor force, even though these are dominant attributes of their labor markets. As aresult, policymakers and donors often “fly blind” on policies that affect workers.

Ideally, policymakers, donors, and researchers inevery country should have regular access to timelystandardized data on labor market conditions, fromboth administrative records and surveyinstruments. A reality check is needed, however,because the development of data systems is costly,and absorptive capacity in many countries is


limited. Donors should support data collection and analysis systems when such systems meetdemonstrated needs and when the recurrent costs are manageable. These considerations suggestthat programs to develop labor market data must be prioritized in close consultation with therecipient governments.

Important gaps in our understanding of labor market adjustments are listed below. Implications ofthese gaps for an analytic agenda for USAID and other donors are discussed in Chapter 5.

Short-term Adjustments Labor displacement. To what extent is labor displaced as a consequence of trade

liberalization? Is this a major source of job loss, or a minor cause of job churning?

Distributional effects. Which groups are affected most severely by trade-related job loss andincreasing wage inequality? To what extent do displaced workers fall into poverty as a resultof these job losses?

Transition path. How quickly do affected workers find new jobs or income-generatingactivities? How do new wages and working conditions compare with those of the jobs thatwere lost? What determines whether different workers recover quickly or not?

Phasing and sequencing. How are different groups of workers and households affected bythe phasing of trade liberalization policies? Does slower implementation improve the balancebetween job creation and job destruction, or does it simply delay benefits, postpone costs, anddraw more workers into unsustainable jobs?

Location effects. To what extent are the adverse impacts concentrated in particular locations?What are the best ways to ameliorate the adjustment costs in these circumstances?

Consumption effects. To what extent is job creation stimulated by the consumption effectsand expenditure linkages that ensue after trade liberalization?

Labor’s share of income. In what direction, and to what extent, does trade reform affectlabor’s share of national income?

Political economy of trade reform. What can be done to manage the political economy oftrade reform, with respect to labor market adjustments? How can researchers and policyanalysts do a better job of focusing attention on the winners from trade reform?

Longer-term Adjustments Investment response and the growth of labor demand. What are the critical constraints and

barriers in each country that limit the investment response to economic reforms, includingtrade liberalization?

Employment intensity of new investment. What determines the employment intensity of thenew investments stimulated by lower barriers to trade? What is the role of variousinstitutional and policy factors?

Wage inequalities and skills response. To what extent do wage inequalities grow after tradereform? Does the pattern of inequality change by gender or across sectors, regions, and skill


levels? To what extent is there any discernible pattern by gender or income level? How doesthe supply of skills respond to these changes in wage differentials and skills-biased growth inthe demand for labor fostered, in part, by trade liberalization? Are public sector interventionswarranted to facilitate skill development and upgrading? What are the most cost-effectiveapproaches?

Migration and trafficking effects. What are the relationships between trade liberalization, onthe one hand, and longer-term trends in international migration and trafficking in persons, onthe other?

Structural and Institutional Factors Sources of heterogeneity. Which policies or characteristics matter most in determining the

gains and losses from trade reform? Which structural and institutional reforms maximizegains?

Labor protection vs. market flexibility. What is the appropriate balance between protectionand flexibility? What are the benefits and costs from modifying particular labor regulations ,such as the minimum wage, mandated benefits, hiring and firing rules, severance pay, andrestrictions on the use of foreign workers?

Adjustment assistance. How does one determine the most appropriate form and amount ofassistance—if any—for workers displaced by trade reform? How do social safety nets affectincentives for displaced workers to retrain, relocate, and search for new jobs?

4. Donor Assistance: Lessonsof ExperienceThis chapter surveys donor experience in trade-related labor adjustment assistance. We firstreturn to the diagram from Chapter 1 that depicts the intersection of trade, labor, and adjustmentassistance to orient our discussion of interventions at or near this intersection. We then reviewdonor programs that address aspects of trade-related labor adjustment. Most of these programs donot name such adjustment as a primary focus. However, they do address important aspects of theadjustment process, and help us determine which programming strategies are most effective. Weconclude by identifying gaps in our knowledge of what makes program assistance effective.

SCOPE OF TRADE-RELATED LABOR ADJUSTMENTASSISTANCETrade-related labor adjustment assistance includes programs at the intersection of three broadercategories: trade capacity building, economic adjustment, and labor market functioning. Figure4-1 shows the relationships between these categories, as they relate to donor assistance programs.We focus here on where the three circles overlap: trade-related labor adjustment assistance.Programs in this area generally have the following purposes:

1. To improve economy-wide labor market outcomes after trade liberalization, including

Increased formal sector job creation; Increased labor force participation, Lower unemployment; Higher real wages and labor incomes; Higher labor productivity; and A reduction in poverty.

2. To ease and expedite adjustment for dislocated workers and the communities in which theywork. Specifically, this means:

Helping dislocated workers to find new, good jobs; Helping dislocated workers acquire new skills in anticipation of re-employment; Providing dislocated workers income support during periods of temporary unemployment; Helping communities that have lost jobs to attract new ones; and. Improving gender equity.


Figure 4-1Programming for Trade-related Labor Adjustment and Associated Challenges

REVIEW OF DONOR EXPERIENCEFew donor programs, past or present, name trade reform-related labor adjustment as an explicitprogram goal. But many address, at least in part, one or both of the two broad objectives forlabor-related adjustment assistance: improving economy-wide labor market outcomes after tradeliberalization, and easing and expediting adjustment for workers and communities. The first twosubsections below describe programs that address these objectives. The final subsection reviewsprograms less directly relevant to the objectives, but that still yield insights on good practice fortrade-related labor adjustment programs.

Programs to Improve Economy-wide Labor Market OutcomesThis category of assistance includes programs to improve countries’ environments for doingbusiness, to enhance the competitiveness of specific industries, and to improve labor productivityat the factory level. Among these, the type of program most systematically evaluated iscompetitiveness. The results of other programs—on net employment, skills and wages, andforeign direct investment flows—will not be evident for several years.

Trade capacity/labor market

Improving compliance with laborstandards provisions of tradeagreements, such as for child labor

Economic adjustment/labor market—Employmentservices for laid-off workers after economicrestructuring, such as privatization; livelihoodtransition support to integrate ex-combatants andnatural disaster victims into the workforce

Trade capacity/ economicadjustment

Assistance for fiscal reform to dealwith loss of import duty revenue

caused by trade reform

Trade Capacity Building

Negotiations, implementation,responding to economic

opportunities

EconomicAdjustmentEconomic policyreform

Labor Market

Vocational educationand training; skill

standards andcertifications; labor

institutions, laws,

Trade–related Labor AdjustmentPrograms to (1) improve economy-wide labor market outcomes aftertrade liberalization, and (2) easeadjustment for workers andcommunities

D O N O R A S S I S T A N C E 29

Enhancing the Business-Enabling EnvironmentBurdensome regulations cause businesses to operate in the informal economy, where they remainsmall and create few jobs. Ease in doing business is associated with lower unemployment(Djankov 2006). When investors can easily start and close businesses, obtain needed licenses,hire and fire workers, obtain credit, and perform other business functions, they tend to becomeformal—and create jobs. Examples are plentiful: since 2002, Slovakia’s reforms helped cutunemployment by 43,000, and Colombia’s reforms of employment and business start-upregulations created 300,000 formal sector jobs (Djankov 2006).

According to the World Bank’s Doing Business report, 99 countries introduced 185 reforms tomake it easier to do business in 2004 (Djankov 2006). USAID has dedicated substantial supportto such projects: over the past 15 or so years, the agency has funded and/or implemented morethan 600 business enabling environment projects. As of 2004, cumulative spending on theseprojects totaled nearly $3 billion (USAID 2004a).28 The agency has sponsored enablingenvironment reform projects in every region of the world, with the greatest number of projectsand highest expenditures in Asia and the Near East and Europe and Eurasia. Africa has hosted thefewest such projects, but USAID is increasing its focus on enabling environment reform in theregion.

USAID and other donors do address labor regulations, but the Agency has focused less on thisthan all other enabling environment reform topics (USAID 2004a). Examples include thefollowing:

Ghana Trade and Investment Reform. USAID supported consensus-building activities thatculminated in a new labor law. The law promulgated “clearer, more flexible and manageablelabor regulations” (USAID 2004a), and was hailed as an outstanding example of policyreform consensus building (Stryker et al. 2003).

Bulgaria Labor Market Reform. This project seeks to help Bulgaria create policies that giveemployers “the flexibility to make adjustments in the level and composition of theirworkforces necessary to improve productivity. . . and make their businesses morecompetitive.” (USAID 2004a). The project’s goals include reduction of individuals’ periodsof unemployment and the level of long-term unemployment.

Sri Lanka National Productivity Policy. This project was led by The CompetitivenessInitiative, a USAID program. The project prepared a “National Productivity Policy for SriLanka” report and proposed reforms to the Labor Termination Act and labor disputeprocedures. While incremental progress in both of these areas resulted, Parliament did notenact the sweeping reforms that the project proposed. Trade unions demanded safety nets asnecessary complements to labor law reforms, and Parliament’s failure to pass theseimprovements doomed the reforms (USAID 2004a).

28 USAID uses the term “microeconomic reform projects” to describe its business-enabling environmentwork. It cautions that the number of projects may be underestimated as a result of staff turnover-inducedloss of institutional memory. On the other hand, funding may be overestimated due to counting thecomplete budgets of activities in which enabling environment reforms formed only one part.


Improving Sectoral and Enterprise CompetitivenessCluster competitiveness programs assist “clusters,” which are groups of firms that make the sameor similar goods or provide similar services (e.g. leather goods, IT services). These programsprovide technical, management, marketing, and networking assistance to cluster associations andindividual companies. By 2003, USAID had undertaken cluster-based competitiveness initiativesin 26 countries. The World Bank, European Community, and other donors have supported similarinitiatives around the world (Mitchell Group 2003; ADE et al. 2003).

Through the Mediterranean Development Assistance (MEDA) program, the EuropeanCommunity and 10 countries are working to improve the competitiveness of partner countries’private sectors before the countries implement economic partnership agreements with the EU.MEDA has delivered technical, management, and training services to SMEs through businesscenters and helped prepare broad “industrial modernization” strategies.29 An external evaluationof MEDA found that it delivered many outputs (e.g., number of persons trained, number ofbusiness plans produced), but its impact on outcomes was inconclusive (e.g., impact on sales,exports, employment).

Competitiveness initiatives often acknowledge the importance of workforce development and jobcreation. However, they do not universally include large components in these areas, nor do theyalways include job creation as an explicit objective, even though the number of jobs created is aresults indicator for some.30 For countries that depend heavily on a single, labor-intensive sector,job considerations may figure explicitly and in fact be a significant driver as well as desiredoutcome of a competitiveness activity. For example, USAID/Dominican Republic has launched aGlobal Development Alliance (GDA) initiative funded by three parties: USAID/DominicanRepublic, USAID/EGAT, and ADOZONA, an association of local garment producers. The GDAis training Dominican workers in skills demanded in the apparel sector, a sector that accounts forthe vast majority of the country’s export revenue and that is facing intense global competitionsince global textile and apparel quotas were eliminated in January 2005.

Boosting Labor ProductivityProductivity growth is considered the linchpin of economic growth, part of the “microeconomicagenda” that must accompany projects focused on macroeconomics (USAID 2002). Donor-supported efforts to improve labor productivity are often linked to general trade competitivenessinitiatives. But competitiveness is not the sole impetus for donor programs that aim to boostproductivity. For example, USAID’s decision to focus resources in Cambodia on improving laborproductivity in the garment sector was linked to broader objectives, including economicgovernance, labor rights, and educational development. Heightened global competition in thetextile and apparel sector—a sector critical to Cambodia’s economy—was also a very significantunderlying factor. In this case, the trade reform that triggered or threatened to trigger adjustments

29 See http://europa.eu.int/comm/external_relations/euromed/meda.htm.30 A thought leader in the business, SRI International, lists the capability for “generating substantial

employment opportunities” as a criterion for identifying high-potential clusters (Mitchell Group 2003, 35).


in the labor market was not a reform implemented by Cambodia, but the phase-out of the globaltextile and apparel quotas.

As a result of a unique set of historical and economic factors, USAID/Cambodia identified a wayto further its strategic objectives for both economic and political governance, as well aseducational advancement objectives, in a niche not occupied by other donors and consistent withU.S. objectives to strengthen Cambodian adherence to internationally recognized good laborpractices.31 A benchmarking assessment concluded that training mid-level factory managers aswould produce the greatest impact on Cambodian competitiveness and general labor practices(Salinger et al. 2005). In 2005, USAID launched a three-year project to create a self-sustainingGarment Industry Productivity Center in Cambodia. Project outcomes to be monitored include thedevelopment of skills among training participants and the effect on productivity in participatingfactories (O’Dell 2005).

Efforts to improve labor productivity can be at odds with efforts to create jobs (i.e., to boostdemand for labor). A well trained, more productive workforce may be able to produce more withfewer workers; if demand for workers’ output does not rise, the net employment impact may benegative. Thus, productivity-related interventions must simultaneously consider how to ensurethat labor demand remains strong or grows. In Cambodia, USAID believes that productivityenhancements will help producers to remain competitive in a global environment of heightenedcompetition, and to retain—or even lure—much-needed foreign investment.

Programs to Ease and Expedite the Transition Process forWorkers and CommunitiesPrograms focused on “improving the functioning of the labour market by enhancing labourmarket mobility and adjustment, facilitating the redeployment of workers to productive activitiesand, generally, enabling people to seize new job opportunities as they arise” are often collectivelyreferred to as “active labor market programs” (ALMP).32 Cahuc and Zylberberg (2004) define anumber of ALMP intervention categories. Those most relevant to trade-related labor adjustmentsare as follows:33

Employment services include job search assistance, career counseling, and labor exchanges.These programs can be cost-effective when implemented in favorable economic

31 Cambodia and the U.S. signed a Bilateral Textile Agreement in 1999 that linked Cambodian access tothe U.S. market to Cambodian factories’ compliance with international labor standards, to be monitored bythe International Labor Organization. In addition, it was recognized that Cambodia’s ability to retain orexpand its position as a garment supplier to the U.S. and EU markets would increasingly depend on itscompetitiveness as well as adherence to strong labor standards. U.S. foreign assistance in Cambodia,precluded under the Foreign Assistance Act from providing assistance to the Cambodian government, istargeting civil society groups and private sector actors.

32As defined in the OECD glossary (www.oecd.org). Active labor market programs are distinguishedfrom “passive” labor market programs, such as the provision of unemployment benefits and earlyretirement pensions, which are not addressed by Dar and Tzannatos or Betcherman et al.

33 The discussions of the focus and impact of each type of assistance are drawn from Dar and Tzannatos(1999) and Betcherman et al. (2004).


environments. They are relatively ineffective in the absence of demand for labor, and they areless appropriate in countries where the share of formal sector employment is low. The LaborExchange project (Anglophone Caribbean and Suriname) funded by the U.S. Department ofLabor is an example of an employment services project.

Retraining for workers laid off en masse is two to four times more expensive than job searchassistance for such workers. Dar and Tzannatos state that “the evidence on the lack ofeffectiveness and cost-effectiveness of these programs suggest [sic] that they should not bethe principal source of support to assist individuals to move to gainful employment. If theseprograms are to be used, they should be small scale and targeted towards those subgroupswho can benefit the most from them” (1999).

Wage subsidies most often take the form of payment to firms to hire unemployed individuals.Dar and Tzannatos conclude that subsidies “are unlikely to have positive social returns in theway measured by economists, though they may contribute to some reduction in socialexclusion among older workers and single mothers.”

Public works programs usually provide jobs to disadvantaged groups, such as older workers,the long-term unemployed, those affected by crisis or disaster. These programs are useful asshort-term social safety nets, but ineffective as permanent solutions to unemployment.Workers receive little training that makes them employable afterwards.

Microenterprise development programs have been widely embraced by donors, but do littleto significantly reduce unemployment. They appear to work best when targeting specificgroups, such as women and older workers.

Some programs combine one or more of these types of interventions. We describe two suchprograms below: the U.S. Department of Labor’s SEED Act Programs and the U.S. TradeAdjustment Assistance Program.

SEED Act ProgramsThe U.S. government sponsored labor market adjustment programs in several Central and EastEuropean countries under the 1989 Support for East European Democracy (SEED) Act. SEEDprograms were intended to help workers who lost their jobs because of privatization andgovernment restructuring. Assistance included public employment services, vocational training,labor department capacity building, labor/management relations training, and labor redeploymentservices. Grants-funded community development initiatives complemented employment services.

SEED programs have been evaluated a number of times, but the evaluations focus on outputs(labor market services provided) rather than outcomes (employment). Many U.S. Department ofLabor (USDOL) labor market transition programs in Poland, Hungary, and Bulgaria weredesigned using labor employment service models drawn from U.S. experience (Glaeser et al.1996). Longer time horizons and greater access to local economic development grants wouldhave strengthened the projects’ abilities to expand results delivery (Stacey 2005). Evaluationsallude to difficulty with cross-donor coordination during this period of significant change andrapid resource transfer (World Bank, ILO, and European donors were also active in these areas).While the effect on job creation is unknown, local economic development had a substantial effect


on empowerment and democracy-building, as did the modernization of labor market services(Eriksson et al. 2003).

U.S. Trade Adjustment Assistance ProgramThe United States Trade Adjustment Assistance (TAA) program, in effect since 1962 andmodified several times since, assists workers who are “certified” by the Department of Labor ashaving lost their jobs because of trade. Benefits include retraining and job search/relocationsubsidies as well as “passive” assistance (extended unemployment insurance and health carebenefits). In addition, “Alternative TAA” offers wage subsidies to workers who do not enterretraining, but quickly find new jobs at a lower pay rate.

In addition to the benefits it offers dislocated workers, TAA may also serve a political purpose:the existence of a safety net for workers dislocated by trade may soften opposition to tradeliberalization (Rosen 2002). The program has interested policymakers in a number of developingcountries, though the high costs of the U.S. TAA program suggest that it would be difficult totransplant a comparable program to most developing countries.

In the United States, the TAA program has been the subject of recent scrutiny. A 2004 evaluationby the U.S. Government Accountability Office found that retraining services were muchimproved through the creation of “one-stop centers” providing a package of services to displacedworkers and recommended a more thorough evaluation. In response, USDOL contracted in 2004with an outside firm to assess the impact of the program on training and wage outcomes,comparing TAA participants with a control group of unemployed workers served by programsoutside of TAA. Site visits, quantitative analysis, and write-up are expected to run through 2008.

Other Trade-Related Labor Market ProgramsIn this section, we review programs that do not fit neatly into the two broad categories of trade-related labor adjustment assistance, but which still yield insights on good practice. Some fallwithin the U.S. government definition of trade capacity building assistance, others do not.

Trade Capacity Building: Human Resources and Labor ProgramsSince 1999, U.S. government agencies have contributed more than $5 billion to trade capacitybuilding (TCB) assistance. TCB funds support a broad range of trade-related activities, includingtrade policy formulation and implementation, export promotion and competitiveness, trade-related infrastructure, customs and border procedures, and trade-related labor and environmentalissues (Figure 4-2).

USAID’s database of U.S.-funded TCB activities categorizes them by program focus.34 Thecategory “Human resources and labor standards” includes the following activities:

Programs to combat the worst forms of child labor; Programs to promote compliance with labor rights and standards;

34 http://qesdb.cdie.org/tcb/index.html


Workforce assessments andworkforce development;

Competitiveness initiatives; Support for labor institutions and

trade unions; and Labor-related research and training.

Between 1999 and 2005, HR/LSaccounted for 14 percent of U.S. TCBspending. However, the sums provided toHR/LS have shrunk recently, as seen inFigure 4-2. Table 4-1 provides abreakdown of HR/LS activities from2002 through 2005. Although USAIDmanages two-thirds of TCB assistance, ithas managed only 7 percent of the HR/LSprograms in the past four years; the USDOL’s International Labor Affairs Bureau (ILAB) hasbeen responsible for more than 90 percent of activity in this category. This institutional settingmay shift, as ILAB has experienced significant budget cuts in recent months.35

Table 4-1U.S. Trade Capacity Building Assistance on Human Resources and Labor Standards, 2002–2005

Subcategory Share of Allocation (%)

Programs to combat worst forms of child labor abroad 69.9

Promotion of international labor standards, labor rights, worker safety 18.9

Workforce assessments, workforce development, education and training, employment

services

5.5

Promotion of economic growth, competitiveness, cluster development, business

advisory services, business education

1.8

Trade union organization, promotion of collective bargaining 1.3

Development of labor institutions, labor policy reform, insurance schemes 1.2

Other 1.4

Total HR/LS resources, 2002-2005 $440.8 million

SOURCE: USAID TCB Database, http://qesdb.cdie.org/tcb/index.html, accessed 11/30/05

35 This institutional responsibility may soon shift or be eliminated, as the proposed FY 2007 budget for ILAB ismore than 80 percent below its FY 2006 enacted level, returning ILAB to its core mission of research and advocacy.Source: U.S. Department of Labor. (2006) “FY2007 Budget Overview.”http://www.dol.gov/_sec/Budget2007/overview.htm, accessed February 7, 2006.

Figure 4-2U.S. Trade Capacity Building Assistance, by Category($US million)

0

200

400

600

800

1000

1200

1400

1999 2000 2001 2002 2003 2004 2005

Other

Agric

FinSector

Infra

HR/Labor

Tr Facil

http://qesdb.cdie.org/tcb/index.html


The TCB database implies that U.S. government funding for trade-related labor adjustmentassistance is almost nil, but activities associated with aspects of the adjustment process do appearin categories besides HR/LS. For example, funding for programs focusing on exportcompetitiveness (and job creation or maintenance) are generally counted under trade facilitation,rather than human rights/labor standards.

Similarly, USAID TCB funding has directly addressed the employment effects of tradeliberalization in relation to trade in textiles and apparel—although such work is apparentlycounted under trade facilitation rather than HR/LS. Before textile and apparel quotas werephased-out, many textile-dependent developing countries sought assistance to analyze the impactof the phase-out and ways to improve competitiveness or diversify their export base. USAIDsupported such studies in a number of developing countries, including Cambodia, the DominicanRepublic, Madagascar, Bangladesh, and Sri Lanka. It also implemented competitiveness andlabor productivity programs in several of these countries.

Finally, USAID has sponsored or co-funded a number of Diagnostic Trade Integration Studies(DTIS).36 These studies explore the linkages between trade’s income and employment effects andpoverty reduction. For example, the Mozambique DTIS defined a pro-poor trade reform strategythat examined trade’s impact on livelihoods and labor markets (Nathan Associates 2004b). TheUSAID TCB database usually tallies DTIS support as “assistance related to trade agreements”rather than HR/LS.

Assessment Tools and ApproachesTo guide programming decisions for ALMPs or TCB assistance, USAID sometimes useassessment tools with a workforce focus or subcomponent. We focus on three in particular:

Workforce Assessments. In 2002, USAID launched Global Workforce in Transition (GWIT),an initiative which has conducted “workforce assessments” in more than a dozen countries.These assessments examine labor supply and labor demand and suggest ways to bridge them.USAID/Morocco’s Advancing Learning and Employability for a Better Future (ALEF)project is one example of a multiyear program implemented in response to such anassessment; vocational training has focused on agricultural education, tourism industrytraining, and entrepreneurship training in and outside schools.37 Another new USAIDworkforce activity is the Asia and Near East Bureau’s (ANE) “Jobs for the 21st Century”initiative. It launched country assessments in late 2005 for the Philippines and India, and willlaunch at least 6 more over the next 12 to 18 months. The approach is unique in that botheducation and economic advisers in the Bureau are designing and implementing theassessments.

36 DTISs are carried out by a number of donors under the umbrella of the Integrated Framework forTrade-Related Technical Assistance to Least Developed Countries. See www.integratedframework.org forexamples.

37 See www.alef.ma for information in French on the project.


Trade Reform Impact Assessments. A number of USAID TCB activities have completedseparate workforce or job impact assessments, including in the context of bilateral ormultilateral trade negotiations. In Morocco, USAID conducted an assessment duringnegotiations on a bilateral free trade agreement with the United States. The assessmentrecommended programs targeting the rural sector and the “missing middle” of out-of-schoolyouth, especially girls (Salinger et al. 2003). In the Dominican Republic, USAID sponsored astudy of likely employment effects of the phase-out of the textile and apparel quotas (Minor2003). Subsequent econometric modeling projected the impact on the Dominican Republic ofa U.S. free trade agreement with five Central American countries, and assessed scenarios inwhich the Dominican Republic was party to the agreement. The findings persuaded theDominican government to join the negotiations.

Trade and Gender Assessments: USAID’s Office of Women in Development’s GreaterAccess to Trade Expansion (GATE) project identifies gender-based constraints onparticipation in trade-related activities. GATE applies the trade impact review (TIR)methodology developed by the Women’s Edge Coalition.38 The TIR recognizes that manyaspects of labor markets are marked by gender differences, irrespective of education and skilllevels (Gammage et al. 2002, v). GATE will provide analytical and operational support to atleast eight USAID missions and operating units.39

Strengthening Labor Market InstitutionsLabor market institutions include labor ministries and inspectorates, unions, employerorganizations, labor courts or arbitration councils, and employment search services (public orprivate). Donors support a number of programs to build these institutions’ capacities, includingtheir ability to uphold labor standards. These programs sometimes overlap with other initiatives,like trade capacity building (see Exhibit 4-1), business-enabling environment reform, ordemocracy and governance. Regardless of the umbrella under which they sit, this assistance isrelevant to both economy-wide and worker/community adjustment processes.

KNOWLEDGE GAPS RELATED TO PROGRAMMINGThere is still much we do not know about how best to promote smooth labor market transitions inresponse to trade liberalization. The following represents a summary of the practice gapsobserved across programs and project activities surveyed here:

Labor institutions and the economic growth agenda. What is the best way to create synergyamong economic growth and democracy and governance activities so that labor andeconomic growth agendas are more compatible? Can the successes of labor organizationactivities help labor groups take on broader business and economic objectives? How does one

38 See Gammage et al. 2002; White 2002; and Daniels 2005. The TIR has been applied to the case ofMexico in White et al. 2003.

39 For an example of GATE’s contribution to the USAID/Bangladesh country action plan, seeDevelopment and Training Services, Inc. (2005). GATE will conduct a TIR in Bangladesh in 2006.


bring employers and workers together to discuss competitiveness and more equitabledistribution of the gains from growth?

Exhibit 4-1Improving Labor Rights: The Trade Agreements Angle

The U.S. Trade Promotion Authority Act of 2002names as a trade negotiating objective the

strengthening of U.S. trading partners’ capacity to

promote respect for core labor standards. USDOL’sILAB, the ILO, and the nonprofit Solidarity Center

have implemented important U.S. government–

funded work in this area. Cambodia provides severalexamples. Between 2001 and 2005, the ILO was

contracted by the U.S. government to monitor

working conditions in Cambodia’s garment factoriesbecause the country’s enforcement of its labor code

and core international labor standards was stipulated

in the U.S.–Cambodia Bilateral Textile Agreement.These activities have empowered laborers and helped

the government and employers to recognize that

socially responsible manufacturing is a legitimate andrewarding element of the competitiveness equation.

To underscore the link between labor standards and

global competitiveness, the World Bank’s ForeignInvestment Advisory Service recently advised

Cambodian authorities and garment industry leaders

on options for national branding in the sociallyresponsible manufacturing market niche (FIAS

2005).

Note: In the wake of elimination of multilateral textile quotas, these functions have been reorganized into the Better Factories Project,managed by the ILO and funded by the U.S. Department of Labor, USAID, Agence Française de Développement, the GarmentManufacturers’ Association in Cambodia, the Royal Government of Cambodia, and international garment buyers. Seewww.betterfactories.org.

Coordination between specialists in the fields of economic growth and education.Professionals in the fields of economic growth and education may have difficulty relating toeach other’s domains—business and classroom can sometimes seem far apart. What kinds ofworkforce development or labor market training exercises would help specialists in these twofields speak a common language around the workplace, jobs, and education and training foremployment?

The formal vs. informal sector. What else do ALMPs that focus on youth, women, informalsector participants, or other under-represented groups need to do? Should USAID and otherdonors focus worker interventions on training in anticipation of formal sector employment, orprepare workers for informal sector employment, even as they undertake programs toimprove the business environment such that informal sector entities may choose to register inthe formal sector? How should they modify workforce development programs to address theparticular, alternative education and social service needs of specialized labor market clientswho may not be immediately destined for formal sector employment?

Results indicators. How should one evaluate programs that address trade-related laboradjustments? Many USAID programs measure effectiveness by the number of new jobscreated, even when the intervention is occurring in amidst heightened competition at homeand abroad as a result of trade liberalization. Is there a better indicator of impact? How shouldone measure improvements in worker productivity (and thereby competitiveness)—particularly if interventions diminish the need for workers? What indicators should one use toassess how well the labor market is working?

http://www.betterfactories.org/


Cost-effective approaches for monitoring and evaluation: How can USAID help its partnergovernments, agencies, and interest groups develop cost-effective systems to monitor andevaluate the long-term impact of trade liberalization on labor markets and workers?

5. Recommendations for USAIDIn this chapter, we outline an agenda for addressing needs identified in the research inventoryfrom Chapter 3 and the survey of assistance in Chapter 4. We then describe how USAID couldimprove its collection and organization of information on trade reform and labor adjustment,systemize the harvesting of “lessons learned” from projects, and foster knowledge exchangeamong the many groups and individuals who are working on this topic.

1. Fill Gaps in Understanding of Trade Reform and Labor Adjustment

Selective USAID support for analytical work on labor market issues can enhance theeffectiveness and sustainability of country programs that address labor market adjustments totrade reform. Priorities include

Standard data on labor market conditions. Policymakers should have at least monthly orquarterly access to data on labor force participation, formal sector employment, openunemployment, wages, and productivity, disaggregated by sector and gender. Breakdown byage and education is also desirable. Systems should be developed to provide regular but less-frequent data on informal sector employment, rural employment, underemployment, andpoverty rates.

Institutional capacity for conducting labor force, household, and enterprise surveys. Inconjunction with major trade liberalization programs or TCB programs, USAID missionsshould consider supporting tracking or household panel surveys of persons adversely affectedby reforms. Such surveys help USAID and partner countries understanding adjustment costsand design assistance programs. Without this information, even assessing whether suchprograms are worthwhile is difficult. Enumerators must be trained to survey male and femalehousehold members and capture gender asymmetries.

Additional suggestions include the following:

USAID missions involved in any aspect of trade policy reform or trade capacity buildingshould expect to monitor labor market statistics, identify major deficiencies in labor marketdata systems, and coordinate with the host government and other donors to remedy criticalproblems.

Programs to improve labor market statistics must balance the value of this informationagainst the cost of new systems development, limitations on the absorptive capacity ofstatistical agencies in many developing countries, and other data development priorities.

All programs aimed at improving the quality of labor market data must include thedevelopment of systems for timely disclosure to the public.


The development of labor market data systems should take into account ILO standards, asmuch as possible.

2. Explicitly Include Labor Adjustment Support in TCB Assistance

Donors providing TCB support in the context of trade negotiations—or even unilateral reforms—should assess likely labor market effects and implement programs to ease adjustment costs. Thissort of assistance strengthens trade partners’ reform-minded leaders as they seek to build localsupport for liberalization. An approach to technical assistance that is mindful of adjustment costscalm trade partners’ fears about those costs. Where possible, USAID should consider labormarket adjustment issues before negotiations start, consulting with USTR on how to support thenegotiations with adjustment-related assistance. This sort of assistance strengthens trade partners’reform-minded leaders as they seek to build local consensus for trade liberalization, and thus cancontribute to the advancement of the bilateral negotiations.

This programmatic survey found examples of USAID mission performance plans that explicitlyaddressed post-liberalization adjustments, as in Jordan, Morocco, Honduras, and Cambodia.Unfortunately, they represented a small minority of the plans surveyed for this report, suggestingroom for improvement agency-wide.

In addition, USAID and other donors may wish to review internal and multidonor definitions andsub-classifications of TCB assistance to ensure that trade-related labor adjustment assistance isfully reflected in data collection and reporting.

3. Design Trade-related Labor Adjustment Assistance Strategically and Comprehensively.

Donors should take the following into account when designing trade-related labor adjustmentassistance:

External forces such as trade and investment that affect demand for and supply of labor, and

Institutions, policies, and regulations (i.e., the business-enabling environment) that are muchbroader than “labor” institutions as conventionally defined, but which have fundamentalbearing on economic growth and hence the demand for labor.

Such programs should reflect an understanding of the short- and long-term dynamics of economicstructural change after trade liberalization—including expected effects on employment, wages,skills requirements, working conditions, and other labor market dimensions. From such acomprehensive analysis, missions can identify strategies for business promotion, competitivenessand/or labor productivity enhancement, workforce skill development, and transitional assistancefor dislocated workers. USAID’s Jobs for the 21st Century Initiative and its Garment IndustryProductivity Center in Cambodia take this approach (see Chapter 4). Another example isUSAID/Morocco’s ALEF program which seeks to strengthen functional alliances betweeneducation and training systems and the private sector. Today, there is often a disconnect betweeneconomic growth and labor-related programming, with the former focusing on private sectordevelopment, and oriented typically toward producer entities, and the latter focusing on workerorganizations, worker rights, labor-related legislation or regulation, and or worker skillsdevelopment. Trade adjustment-related labor assistance needs to be designed more expansively orholistically.

RE C O M M E N D A T I O N S 41

4. Assess Program Results and Longer-term Impact on Labor Markets and WorkerAdjustment Paths

As country trade reform programs are implemented, economic progress should be tracked interms of job creation, labor income, labor market function, and productivity trends, using somecombination of indicators outlined in the technical note in Appendix A. At the same time, USAIDshould insist that missions report outcomes using a metric that provides insight into the cost-effectiveness of various approaches. Examples include cost per job placement, cost per workertrained to a given skill level, or cost per unit of income generated by training or business supportprograms.

Labor market programs, trade reform programs, and business development programs shouldrequire baseline surveys and regular follow-on surveys to monitor and evaluate labor marketimpacts. When possible, programs should be structured with control groups to enablescientifically sound impact evaluations.40

5. Better Organize USAID Program Information to Facilitate Dialogue

There are many opportunities for strengthening knowledge management in USAID. For instance,while strategic plans, annual reports, and Congressional budget justifications are available online,not all operating units have websites and of those that do, not all websites link to project websites.This makes it extremely cumbersome (at least from the outside) to learn about a mission orbureau’s actual project activities, let alone to link specific projects to program components orstrategic objectives under their strategic plan.41 In researching this paper, we started with the TCBdatabase, available online, which identifies specific projects in each country or region or bureauthat have TCB-related aspects for fiscal years 1999 through 2005.42 Activity descriptions andfunding levels are also associated with each entry. This allowed us to search for project-specificinformation by country or region or bureau. USAID’s internal Annual Report database allowsanalysts to connect strategic plans to strategic objectives, program components, and evenspecifically contracted activities. However, parties outside USAID must rely on either Internetsearches for project websites or searches of USAID’s Development Experience Clearinghouse inorder to find project reports.43 In contrast, USDOL maintains a detailed project database and, at

40 In January 2006, the MCC issued Guidelines for Economic Analysis and Guidelines for Monitoringand Evaluation that endeavor to establish standards along these lines for Millennium Challenge compacts.(www.mcc.gov).

41 USAID uses a common reporting framework to publicize its objectives, results, and expendituresacross all operating units (i.e. Washington-based regional bureaus, technical bureaus, and other Agencyunits, and field-based country-level and regional support missions). Each operating unit is governed by itsown multi-year strategic plan, which is built on a limited number of strategic objectives. These, in turn, areimplemented using program components, of which there are nearly 40 that are classified in 9 sectoral areas.Program components are implemented by specific programs, projects, and activities. Program results aremeasured using a set of common indicators. Each operating unit files annual reports of results achieved inthe past year, and budget justifications to Congress which lay out expected funding plans for the upcomingyear.

42 http://qesdb.usaid.gov/tcb/index.html43 http://dec.usaid.gov/


our request, was able to provide “summary sheets” for every project of interest. The sheetsconcisely describe objectives, partners, activities, results and funding. The search for USAIDproject-specific information would be far simpler if all operating units and their projectsmaintained websites and linked them to each other.

6. Conduct Multiproject, Multicountry Evaluations.

Evaluations have fallen out of favor at USAID (Weber 2004), but thematic, multiproject andmulticountry evaluations that explore lessons learned are still needed. Best practice examples arethe Mitchell Group’s excellent survey on experiences with competitiveness initiatives and theGATE project overview of trade- and gender-related best practices.

Besides lessons learned, evaluations also need to tackle the important issue of cost-effectiveness.The ALMP surveys by Dar and Tzannatos and Betcherman et al. highlight the weak returns onseveral approaches to labor market services provision. Donors could undertake such an evaluationin a multi-agency format, as has been done for numerous other topics under the auspices of theOECD’s Development Assistance Committee.

7. Build a Multidonor Community of Practice

Communities of practice unite professionals who are interested in various dimensions of acommon theme. USAID/Washington has an informal, internal community of practice on labormarkets. A small group of experts from global and regional bureaus meets regularly to discusstopics of interest, including analytic needs and aspirations. The authors of this report found greatinterest in labor market adjustments to trade reform among USAID missions, think tanks,research institutes, and consulting firms.44 USAID should link its in-house community of practiceon labor issues to external communities—via websites, workshops, and outreach meetings withcolleagues—to help it become an informed consumer of research on and, ideally, a vigorousparticipant in the broader community of practice on labor market adjustments to trade reform.

44 A list of potential members of this broader community of practice is included in Appendix D.

Appendix A. Technical Note onIndicatorsINDICATORS FOR ASSESSING LABOR MARKET ADJUSTMENTTO TRADE LIBERALIZATIONMany USAID partner countries need donor support to develop the capacity to produce anddisseminate timely and accurate labor market statistics. In low income countries that lack evenbasic data, the process can start with establishing or strengthening systems for obtaining regulardata reports from administrative records covering the formal sector. The sources will vary bycountry, but may include annual company reports to labor ministries and business registries, datafrom labor exchanges, and payroll tax records. In some cases simple modifications to existingreporting forms, such as monthly payroll tax returns, can produce rich information aboutemployment, wages, labor productivity, and the skill structure of the labor force in the formalsector, including breakdowns by sector and by size of enterprise.45

Data derived from formal administrative records will obviously give an incomplete picture ofconditions and trends in the labor market. Broader data can only be obtained from surveyinstruments that contain a well structured labor market module. Adding a labor module to surveysthat are being undertaken anyway is clearly much less costly than creating special surveys. TheWorld Bank is pursuing a labor market research program that will likely address this issue,46 butthere is plenty of scope for other donors to support capacity development in this area.

One glaring data gap relating to labor market adjustments to trade liberalization is the absence oftracking surveys that reveal the actual transition experience of displaced workers. As noted in themain report, several papers were published in the 1990s providing such information in connectionwith lay-offs from civil service reforms in developing countries. Similar microeconomic studiesare badly needed to improve our understanding of how workers displaced due to tradeliberalization fare in terms of employment and income.

45 Taking steps to convert administrative records into useful, timely, and widely disseminated data forpolicy analysis may also cast a harsh light on deficiencies in the administrative records, which could lead tobeneficial changes in the reporting system to improve compliance.

46 One conclusion of the World Bank’s Labor Market Research Strategy (“stocktaking”) Conference inNovember, 2004, was to identify a need for reconsideration of the labor component of the Living StandardsMeasurement Survey (LSMS) methodology, which serves as a standard for household surveys in manydeveloping countries.

A- 2 A P P E N D I X A

A related issue, and a major operative concern for USAID, is the selection of indicators formonitoring labor market conditions in host countries.47 Any template for monitoring labor markettransitions across a wide sample of countries will be heavily constrained by the availability ofcomparable and timely data. Up-to-date labor market indicators will not be found in standardinternational data sources such as the World Bank’s World Development Indicators or the ILO’s“ILOsta” database.48 In middle-income countries receiving USAID support, timely labor marketdata can usually be obtained from local statistical offices. But in low-income countries and fragilestates, timely data on labor markets is often not available. These data limitations underscore theimportance of providing assistance to help partner countries develop systems for collecting anddisseminating labor market statistics.

As the central international source for labor market data, the ILO has developed a set of twentyKey Indicators of the Labor Market (KILM),49 as summarized in Exhibit A-1. For mostdeveloping countries, the KILM agenda is too ambitious. Indeed, even the most basic statisticsare missing or out of date in the KILM data set for a surprisingly large number of countries.

Exhibit A-1Key ILO Labor Market Indicators

Labor force participation rate

Employment –to-population ratio

Status in employment *

Employment by sector

Part-time workers

Hours of work

Employment in the informal economy

Unemployment

Youth unemployment

Long-term unemployment

Unemployment by educational attainment

Time-related underemployment

Inactivity rate

Educational attainment and illiteracy

Manufacturing wage indices

Occupational wage and earning indices

Hourly compensation

Labor productivity and unit labor costs

Employment elasticities

Poverty, working poverty and income distribution

Within USAID, the Global Workforce in Transition (GWIT) IQC has made an effort to identify aset of Workforce Competitive Indicators that could be tracked by USAID missions involved in

47 Due to time constraints, and the focus of this study on trade adjustments, it is not possible to commentin detail on individual indicators in this paper.

48 The WDI 2005 data base has labor force estimates for nearly every country up to 2003, and none for2004; WDI has data on the sectoral distribution of the labor force for only 5 countries in 2002, and nonebeyond that date; no figures are reported beyond 2001 for labor force data by education level; data onunemployment is provided for 80 of 207 countries in 2002, and zero for more recent years. For ILO data,see laborsta.ilo.org/ .

49 International Labour Organization, Key Indicators of the Labour Market, Fourth Edition, 2005.www.ilo.org/public/english/employment/strat/kilm/ .

T E C H N I C A L N O T E O N I N D I C A T O R S A -3

labor transition programs.50 The preliminary list of GWIT indicators (reproduced in Table A-1)includes 17 key variables covering overall program results (growth, poverty, inequality),employment and unemployment, private sector competitiveness, educational attainment, andlabor market flexibility. Dozens of secondary indicators provide more detailed data on the sameissues, as well as on productivity. According to the GWIT report, data on the secondary indicators“are likely to be available at the national level,” but it would require a special efforts to obtainsuch data from local sources. In reality, there are likely to be major gaps in country coverage formany of these variables, even if the “special efforts” are undertaken.

Table A-1(Preliminary) GWIT Workforce Competitiveness Indicators a

Results Indicator Level b

Economic growth Key

Poverty rate > $2 per day Key

Gini coefficient KeyW O R K F O R C E C O M P E T I T I V E N E S S

Employment Key

Unemployment rate Key

Youth unemployment rate Secondary

Unemployment rate by level of education Secondary

Targeted populations: urban, rural, region Secondary

Labor force participation, with breakouts Secondary

Employment-to-population ratio Secondary

Inactivity rate Secondary

Long-term unemployment rate Secondary

Employment in the informal sector Secondary

Annual population growth rates Secondary

Estimated number of jobs that must be created SecondaryPR O D U C T I V I T Y

Productivity by sector, cluster, firm Secondary

Unit labor cost Secondary

Rate of productivity improvement Secondary

FDI Secondary

Public employment as % GDP Secondary

Wages by sector Secondary

Wages and earnings by industry/occupation and industry/gender SecondaryP R I V A T E S E C T O R D I A G N O S T I C

From Porter’s Microeconomic Index

Capacity for innovation Key

Degree of customer satisfaction Key

50 Summarized in Salinger (2005).


Results Indicator Level b

Extent of staff training Key

Production process sophistication Key

Willingness to delegate authority Key

Reliance on professional management Key

Incentive compensation Key

Same measures by industry, cluster, firm SecondaryE D U C A T I O N A L A T T A I N M E N T

Index of primary, secondary, tertiary completion and adult literacy (equal weights) Key

Percent GDP expenditure on education, by level Secondary

Quality measures of teaching workforce Secondary

Educational attainment of men, women Secondary

Percent of 25-29 year olds completed tertiary education Secondary

Female/male adult literacy ratio Secondary

Enrollments, by level Secondary

Tertiary students in science, math, engineering (UNDP-HDR) Secondary

Number of different types of tertiary institutions Secondary

Students in internet based learning SecondaryL A B O R M A R K E T F L E X I B I L I T Y

Doing Business Employment Laws Index Key

Flexibility of hiring index Secondary

Flexibility of firing index Secondary

Conditions of employment index Secondary

TBD Wage/productivity ratio Secondary

Labor market flows(mobility) job change; rural to urban migration Secondary

Part-time workers Secondary

Hours of work SecondaryaWork in progress under the GWIT IQCbKey indicators are ones for which comparable data exist across countriesNote: Secondary indicators are ones for which data are likely to be available at national level.SOURCE: Salinger (2005)

USAID’s Europe and Eurasia (E&E) Bureau has separately developed a set of labor marketindicators as part of their impressive Country Labor Market Assessment activity. The frameworkadopted by E&E examines over 30 indicators under four “pillars” of labor market performanceinvolving labor force participation; capacity and commitment of the state in providing benefits to,taxing, and hiring workers); labor productivity; and labor market outcomes (employment,unemployment, and wages). The following indicators make up the

Participation

Growth/contraction in labor force participation Participation rate (ratio of labor force to working age population) Concentration of prime age workforce Employment as percentage of 1989 levels


Official unemployment rates Labor force survey unemployment rates Youth unemployment Long-term unemployment % employed in agriculture Unemployment benefit eligibility Unemployment benefit adequacy (ratio to minimum food basket) Unemployment benefit claimant ratio Retirement benefit eligibility Retirement benefit replacement ratio Payroll tax as percentage of total wage bill Public sector employment as percentage of total employed

Productivity GDP per capita Growth in GNI per capita, 1998-2001 Ratio of value added to % employed in agriculture, 1998-2002 Labor cost in manufacturing Days lost Occupational fatalities per 100,000

Outcomes Average change in employment since 1997 Income share held by lowest 20 percent Average wages Real wages as percentage of 1989 wages Correlations between real GDP growth and change in employment Unemployment by level of education Unemployment by gender (McKeon 2005)

Data problems are much less severe in the E&E region, because most of the countries arerelatively advanced, and national statistics are linked to the European Bank for Reconstructionand Development and UNICEF TransMONEE51 data systems, as well as the ILO and the WorldBank. Still, the E&E Bureau found it necessary in 2004 to undertake a local data collectionexercise to supplement information available from the standard sources. This exercise wassuccessful, but the costs were fairly high and it was necessary to engage a data specialist tocorrect for inconsistencies across countries. The lesson is that special data collection efforts areno substitute for systematic programs to improve local data systems on labor market conditions.

The labor market data templates developed by the ILO, GWIT, and E&E do not specificallyaddress the impact of trade liberalization. Nonetheless, they provide a diverse menu of indicators

51 “TransMONEE, produced by the UNICEF Innocenti Research Centre, is a database of socio-economicindicators for Central and Eastern Europe and the Commonwealth of Independent States and the Baltics.The database allows the rapid retrieval and manipulation of economic and social indicators for 27 countriesin the region.” Source: http://www.unicef.org/ceecis/resources_1222.html, accessed February 20, 2006.


for monitoring many dimensions of the labor market adjustment process in individual countries orin groups of countries. For any given application, the indicators should be selected on the basis ofclear criteria, such as data coverage, accessibility, timeliness, and quality. In addition, eachindicator must be clearly defined and pertinent to the issues at hand.

In the context of trade liberalization, the empirical literature focuses on three primary labormarket variables:

Employment rates Real wages/labor incomes Wage differentials by skill

The impact of trade on poverty is also a major research concern, probably the dominant concern.As poor families depend largely on labor income, the poverty impact is inseparable from the labormarket impact—though the emphasis for poverty analysis may be on rural and informal sectorlabor markets, rather than trade-sensitive manufacturing. Other variables of significant interest inthe literature, but less widely studied in developing countries (due in part to data limitations),include the effect of openness or globalization on:

Labor transition rates, especially movement from formal to informal or temporary jobs Unemployment, especially long-term job separations Changes in coverage of labor standards and labor protection Incidence of working poor (people with jobs but poverty-level incomes) Labor market opportunities for women, and wage differentials by gender Child labor Geographic mobility within countries International migration

As a final point, the literature on trade and labor market adjustments emphasizes the first-orderimportance of labor demand conditions. Thus, indicators relating to the quality of the businessenabling environment also have a major bearing on labor market dynamics, as constraints on jobcreation. In this regard, some indicators, such as the “Doing Business” measures of the cost oflabor regulations, have dual importance in that they affect labor market adjustments directly, andalso through their impact on the investment climate.

Indicators for Evaluating the Performance of USAID LaborMarket ProgramsIn addition to developing indicators to monitor the labor market impact of trade liberalization,USAID also faces an institutional imperative to identify “results” indicators for tracking theeffectiveness of aid programs to facilitate labor transitions.

On a conceptual level, these programs fall into three categories; they can be designed to:

Enhance the skills, productivity, or mobility of labor supply; Stimulate more rapid growth of labor demand; or Improve the quality of labor market institutions and remove impediments to matching supply

and demand.


On an operational level, USAID missions and bureaus have established results indicators forreporting on the accomplishments of projects spanning 37 Program Components (PCs), whichjointly constitute the overall scope of Agency activities. According to a recent tabulation by DIS,based on USAID’s 2005 Annual Report (AR), 27 of the PCs involve activities with labor-relatedindicators, broadly defined.52 The DIS tables show dozens of different indicators being used totrack program results, bearing some relation to labor markets. Common measures fall intocategories such as the number of program beneficiaries or people trained, volume of job creation,number of business start-ups, amount of micro-credit provision, amount of income generation,number of legal reforms, and various national level statistics, among others.

The enumeration of labor-related results indicators from the 2005 AR raises three concerns,involving the underlying logical framework; the vital distinction between the monitoring ofindicators and the evaluation of program impacts; and the need for more analysis of therelationship between costs and benefits.

First, the indicators selected for each program should demonstrate a clear hierarchy linkingproject inputs to outputs, results, and objectives.53 This familiar logical framework certainly doesnot establish cause and effect at the level of results and objectives, because these outcomes areaffected by many factors beyond project control. Yet it can show whether observed outcomes areconsistent with expectations, and if not, raise valid questions about why the variances occur. Theinformation in the DIS summary of 2005 AR indicators show that most of the indicators used forlabor-related activities focus just on project outputs. It is nice to know, of course, that theintended outputs are produced (such as a given number of displaced workers getting trained); byitself, however, this information conveys nothing about whether the anticipated results are beingachieved (such as job placements), or programmatic objectives observed (such as higheremployment rates, improved labor productivity, and better incomes for workers).

The second tier of problems involves the need to apply more scientific methodology to evaluatethe impact and effectiveness of the programmatic interventions. Specifically in the context ofevaluating active labor market programs (ALMPs), O’Leary (2000) distinguishes uses the term“gross impacts” to describe before-and-after changes, as distinct from “net impacts,” whichrequire with-and-without analysis (as discussed in the previous section). Observed changes inresults indicators, however, well defined and logical they may be, only provide information aboutthe gross impacts. O’Leary acknowledges that it is not simple to carry out an assessment of net

52 On the basis of frequency, the highest incidence of labor-related indicators is found under:

PC 21 (Increase Agricultural Sector Productivity), with 61 instances;

PC 17 (Improve Economic Policy and the Business Environment), with 54 instances;

PC 28 (Improve Quality of Workforce through Vocational/Technical Education), with 39 instances;

PCs 22 and 6 (Protect and Increase the Assets and Livelihoods of the Poor, and Strengthen theLegislative Function/Legal Framework), each with 34 instances;

PCs 16 and 37 (Increase Trade and Investment, and Protect and Increase Food Security of VulnerablePopulations), each with 29 instances.

53 The nomenclature varies from one source to another.


impacts. It requires either field experiments with suitable control groups, or “quasi-experimentalstatistical methods” using microeconomic data to control for the effect of other factors. But healso emphasizes that before-and-after information is of little use for understanding the actualeffects of a program, and may provide decision makers with completely misleading signals aboutthe value of various ALMPs.54

The World Bank has undertaken or reviewed dozens of scientific evaluations of ALMPs, andfound considerable evidence suggesting that many such programs yield poor results. Bank studieshave also confirmed O’Leary’s claim that before-and-after results can be highly misleading. Anexcellent example is a private sector development program (falling on the labor-demand side ofthe conceptual framework) funded by the Bank in Mauritius. The program provided matchinggrants to businesses to stimulate the transfer of technology, in order to sustain rapid growth andenhance labor productivity. An initial before-and-after evaluation showed excellent outcomes forproject beneficiaries. In sharp contrast, a scientific evaluation conducted by Biggs (1999)demonstrated that the project “failed to promote much additionality.” Both the statistical analysisand the supporting facts revealed that the favorable outcomes would largely have occurredwithout project support. Thus, the main effect of the project was simply to subsidize a limitednumber of entrepreneurs, yielding no significant development impact.

This scientific methodology can be costly and difficult to implement properly, so in practice theevaluation of project performance often does rely on the logical framework.55 Even if data is onlyavailable on gross impacts, and not net impacts (using O’Leary’s nomenclature) the monitoringsystem should link the observed changes in key indicators to cost parameters. In short, the projectperformance should judged on the basis of cost-effectiveness, wherever possible. Thus, the datasystems should include information on the cost per job placement, the cost per worker trained to agiven skill level, the cost per unit of income generated, or the cost per micro-credit, rather thanfocusing more narrowly on observed results themselves.

54 O’Leary also makes some interesting points about displacement effects and substitution effects. Adisplacement effect occurs “when treatment subjects improve their outcome at the expense of others.” Forexample, in conditions of stagnant labor demand, a program to train displaced workers may be shown tohelp them land new jobs, but then other workers may be left without employment. A substitution effectoccurs when the designation of monitoring indicators alters the behavior of project participants. Forexample, managers of a training may give preference to workers who least need retraining, in order to showstrong results. O’Leary calls this “creaming.”

55 Interestingly, even the long-standing Trade Adjustment Assistance program in the United States hasnever been subject to a rigorous evaluation analysis. A multi-year study of this nature has only recentlybegun.

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Appendix C. ContactsU.S. AGENCY FOR INTERNATIONAL DEVELOPMENTSeema Agarwal-Harding, ANE/TS

Rita Aggarwal, EGAT/EG/EPG

Monique Bidaoui-Nooren, USAID/Morocco/Education

Christopher M. Brown, USAID/Russia

Jane Casewit, USAID/Morocco/Education

Tony Chan, ANE/TS

Kimberly Ludwig, DCHA

Mary Knox EGAT/WID

Elizabeth McKeon, E&E/DGST

Nancy Rockel Pitrone, EGAT/WID

Tracy Quilter, EGAT/EG/TI

Glenn Rogers, EGAT/EG

USAID CONTRACTORSPeter Davis, Development & Training Services (GATE Project)

Erin Endean, Nathan Associates (TCB Project)

Ron Israel, Education Development Center (GWIT, EQUIP3 Projects)

Joshua Muskin, Academy for Educational Development (ALEF Project)

Jane O’Dell, Nathan Associates (Cambodia Garment Industry Productivity Center Project)

OTHER U.S. GOVERNMENT AGENCIES

Office of the U.S. Trade RepresentativeLewis Karesh, Assistant U.S. Trade Representative for Labor Affairs

Aaron Rosenberg, USTR, Director for Trade and Labor Affairs

Mary Ryckman, Assistant U.S. Trade Representative for Trade Capacity Building

U.S. Department of LaborHeidi Casta, Employment & Training Agency, Office of Policy Development and Research

C- 2 A P P E N D I X C

Terry Clark, Employment & Training Agency

Dorothy Comer, Employment & Training Agency

Erin Fitzgerald, Employment & Training Agency

Douglas Small, Director, Employment & Training Agency, Office of National Response

U.S. Government Accountability OfficeDianne Blank, Assistant Director, Education, Workforce, and Income Security

Lorin Obler, Education, Workforce, and Income Security

Sigurd Nilsen, Director, Education, Workforce, and Income Security

PRIVATE THINK TANKS AND ADVISERSJohn Gilbert, Utah State University

Thomas Hertel, GTAP, Purdue University

Catherine Novelli, Mayer, Brown, Rowe, and Maw (former Assistant U.S. Trade Representative)

Sandra Polaski, Carnegie Endowment for International Peace (former U.S. Special Representativefor International Labor Affairs)

UNCTADSantiago Fernández de Córdoba

WORLD BANKLouise Cord, Poverty Reduction and Economic Management Network

Jean-Jacques Dethier, Research Manager, Development Economist’s Office

Pierella Paci, Poverty Reduction and Economic Management Network

L. Alan Winters, Director, Development Economics Research Group

Appendix D. Communities ofPracticeA community of practice is a self-selected group of people informally united around a sharedpassion and expertise, connected through work, communications (both electronic and face-to-face), and repeated sharing of information (Wenger and Snyder 2000). In this appendix, weidentify communities of practice in the U.S. and elsewhere that are active at the intersection oflabor markets and trade reform.

TRADE LIBERALIZATION AND LABOR TRANSITIONS: AREASOF PRACTICEThe space where trade liberalization and labor market adjustment activities intersect includes thefollowing parties:

Trade negotiators pursue bilateral, regional, and multilateral agreements to address tariffsapplied to trade in goods, customs matters, health and safety regulations, technical barriers totrade, intellectual property, services, investment, electronic commerce, governmentprocurement, trade remedies, and trade-related environment and labor issues.

Development practitioners and their contractors provide a range of internationalcooperation and technical assistance services to developing and transition countries.

Researchers explore labor markets in developing countries at think tanks and universitiesaround the world. Work ranges from the testing of theoretical models to policy advocacywritings.

Workforce development professionals aim to orient public sector policies, institutions, andprograms in ways that address the needs of displaced workers.

Gender analysts and feminist scholars examine the impact of trade liberalization onwomen’s employment in formal and informal sector jobs, wages, job market churning, andthe effects of these on women’s reproductive and household responsibilities.

“Fair trade,” anti-sweatshop, and anti-globalization advocacy organizations haveemerged in large numbers since the Uruguay Round and the creation of the World TradeOrganization. Some of these groups champion measures to protect the livelihoods of farmersand workers in developing countries. Others focus on raising consumer awareness aboutexploitative or substandard working conditions in developing countries.

D- 2 A P P E N D I X D

TRADE LIBERALIZATION AND LABOR TRANSITIONS:COMMUNITIES OF PRACTICE

Academic Institutions and Individual ResearchersThis sections lists academic institutions that specialize in trade liberalization and labor markets,or who have faculty members who focus on these areas. Individuals’ research interests of areindicated in parentheses:

Bard College, The Levy Economics Institute: Caren Grown (women and trade; previousdirector of Poverty Reduction and Economic Governance team at International Center forResearch on Women) (www.levy.org)

Cornell University, School of Industrial and Labor Relations, Department of Internationaland Comparative Labor is concerned with industrial and labor relations systems and labormarkets around the globe, including Western Europe, Asia, Latin America, and Africa.(http://www.ilr.cornell.edu/academics/icl.html)

Dartmouth College, Department of Economics: Eric Edmonds (child labor)(http://www.dartmouth.edu/~eedmonds/), Nina Pavnick (trade and labor)(http://www.dartmouth.edu/~npavcnik/)

Duke University, Department of Sociology: Gary Gereffi (global value chains, industrialnetworks, implications for workforce development)(http://fds.duke.edu/db/aas/Sociology/faculty/ggere)

Harvard University, Department of Economics: Richard B. Freeman (labor institutions, effectof trade on inequality) (http://www.nber.org/~freeman/)

Harvard University, Kennedy School of Government: Robert Z. Lawrence (trade,globalization, labor) (http://ksghome.harvard.edu/~RLawrence/FullBio.html), Martha Chen(gender and globalization) (http://ksgfaculty.harvard.edu/Martha_Chen)

University of California at Berkeley, Department of Agricultural and Resource Economics:Ann E. Harrison (international trade and labor) (http://are.berkeley.edu/~harrison/)

University of California at Davis, Department of Economics: Robert C. Feenstra (globalproduction sharing and wage inequality) (http://www.econ.ucdavis.edu/faculty/fzfeens/) withGordon H. Hanson (see below)

University of California at San Diego, Department of Economics: Gordon H. Hanson (labormigration, globalization, labor market impacts of trade liberalization)(http://irpshome.ucsd.edu/faculty/gohanson/)

Université Montesquieu Bordeaux IV, Centre d’économie du développement: One of thethemes of research for 2003-2006 includes poverty, inequality, and labor markets(http://ced.u-bordeaux4.fr/ced03.htm#A31)

University of Pennsylvania, Department of Economics: Jere R. Behrman (inter alia, labormarkets, education) (http://www.econ.upenn.edu/cgi-bin/mecon/bin/view.cgi?id=2)

http://www.levy.org/

http://www.ilr.cornell.edu/academics/icl.html

http://www.dartmouth.edu/~eedmonds/

http://www.dartmouth.edu/~npavcnik/

http://fds.duke.edu/db/aas/Sociology/faculty/ggere

http://www.nber.org/~freeman/

http://ksghome.harvard.edu/~RLawrence/FullBio.html

http://ksgfaculty.harvard.edu/Martha_Chen

http://are.berkeley.edu/~harrison/

http://www.econ.ucdavis.edu/faculty/fzfeens/

http://irpshome.ucsd.edu/faculty/gohanson/

http://ced.u-bordeaux4.fr/ced03.htm#FEFF004100330031

http://www.econ.upenn.edu/cgi-bin/mecon/bin/view.cgi?id=2

CO M M U N I T I E S O F P R A C T I C E D -3

Wellesley College, Department of Economics: David L. Lindauer (inter alia, labor, trade,poverty and unemployment) (http://www.wellesley.edu/Economics/Lindauer/index.html)

Yale University, Department of Economics: Penny Goldberg (inter alia, trade and labormarkets) (http://www.econ.yale.edu/~pg87/)

Academy for Educational DevelopmentFocus: The Academy for Educational Development manages the USAID-funded “AdvancingLearning and Employability for a Better Future” (ALEF) project in Morocco. The project wasdeveloped in response to a workforce assessment conducted by the GWIT project (see below) onthe likely workforce implications of the U.S.–Morocco Free Trade Agreement. The websitedescribes the project as contributing “… to the ongoing efforts of Morocco to strengthen thequality of its workforce by providing young people with skills that respond to the needs of thechanging marketplace. ALEF will work collaboratively with public and private partners tostrengthen the relevance of basic education and vocational training, thereby increasing jobopportunities. The project will at the same time, build the capacity of educational institutions toprovide job counseling and placement services. Information and communication technologies willbe integrated into all project activities to strengthen the capacities of partners, as well as providestudents with important skills for today’s marketplace. Throughout the project, special attentionwill be given to assuring gender equity and responding to the specific needs of young women intarget communities and schools.” (http://www.aed.org/Projects/ALEF_Morocco.cfm)

Address: Washington, DC (http://www.aed.org)

Contact: Suzanne Dadzie

African Economic Research ConsortiumFocus: The African Economic Research Consortium (AERC) is a network designed to facilitatepolicy-oriented research in Africa, training of graduate level policy-focused researchers, andcommunication of research and training progress among all interested parties. The researchagenda of local and international researchers is determined by an independent advisory counciland disseminated via a program that brings researchers together on a regular basis. Two thematicareas of AERC research are: 1) poverty, income distribution, and labor market studies, and 2)trade, regional integration, and sectoral policies. Published works of interest include analyses ofthe links between macroeconomic reforms, poverty, and labor markets (Agénor, “StabilizationPolicies, Poverty and the Labour Market: Analytical Issues and Empirical Evidence” (1998)) anda survey of formal and informal labor markets (Bigsten and Horton, “Labour Markets in Sub-Saharan Africa” (1997)). Trade liberalization is not a specific dimension of these works.

Address: Nairobi, Kenya (http://www.aercafrica.org )

Contact: Professor William Lyakurwa (Executive Director, AERC)

http://www.wellesley.edu/Economics/Lindauer/index.html

http://www.econ.yale.edu/~pg87/

http://www.aed.org/Projects/ALEF_Morocco.cfm

http://www.aed.org/

http://www.aercafrica.org/


American Institutes for ResearchFocus: AIR is a non-profit research institute that covers a wide range of social sciencedisciplines. AIR’s work in international development focuses on global education projects andworkforce research, including vocational training projects.

Address: Washington, DC (www.air.org)

Contact: Janet Robb (Vice President and Director, International Development), Mark Kutner(Program Director, Workforce Research & Analysis)

Carnegie Endowment for International PeaceFocus: The trade, equity, and development group of the Carnegie Endowment for InternationalPeace (CEIP) has conducted a number of studies and published reports relating to tradeliberalization and its impact on labor standards, as well as on job outsourcing in developedcountries and jobless growth in developing countries. Key CEIP publications in the trade, equity,and development area include analyses, reports, and policy briefs on the impact of NAFTA onMexico’s labor market, integration of labor standards in trade agreements, and strategies forimproving the competitiveness of key export industries (e.g., garments in Cambodia) and theirworkforces in the face of trade liberalization.

Address: Washington, DC(http://www.carnegieendowment.org/programs/global/index.cfm?fa=proj&id=102&proj=zted)

Contact: Sandra Polaski, Senior Associate and Director, Trade, Equity, and Development Project

Center for Global DevelopmentFocus: The Center for Global Development (CGD) conducts joint activities and engages jointfellows with the Institute for International Economics (IIE). Research topics at CGD include tradepolicy and agreements and globalization. Through its linkage to the Institute for InternationalEconomics, CGD also works on labor standards and development. Research conducted byWilliam Cline on the impacts of liberalizing trade policy on global poverty, and by KimberlyElliott on agriculture, textiles, and labor standards, is relevant. Researchers explore implicationsof global and regional trade agreements, and their implications for developing countries. A 2004policy brief by Elliot on CAFTA, labor standards, and development examines the potentialpositive synergies between globalization, development, and labor standards.

Address: Washington, DC (http://www.cgdev.org/)

Contacts: Nancy Birdsall (Director); William R. Cline, Senior Fellow (CGD & IIE); KimberleyAnn Elliot, Research Fellow (CGD & IIE)

Center for Economic and Financial ResearchFocus: CEFIR’s main research areas include industrial organization and competition policy,macroeconomic policy, and labor and social policy. Lead economist Irina Denisova’s research

http://www.air.org/

http://www.carnegieendowment.org/programs/global/index.cfm?fa=proj&id=102&proj=zted

http://www.cgdev.org/


interests include the microeconomics of unemployment, poverty and inequality, and effectivenessof government labor programs. Other areas of related research include the WTO accession andimplications for Russia’s labor market (Akhmedov et al. 2003), and reviews of active labormarket programs.

Address: Moscow, Russia

Contact: Erik Berglof (President), Irina Denisova (labor markets), Ksenia Yudaeva (internationaltrade, Policy Programs Director)

Center for Economic Research and Graduate Education-Economics InstituteFocus: CERGE-EI is an English-language economics teaching and research facility associatedwith both the University of Prague and the Academy of Sciences of the Czech Republic. Two ofits faculty, Daniel Münich and Stephen Jerajda, are engaged in research in the areas of labor andeducation economics.

Address: Prague, Czech Republic (www.cerge-ei.cz)

Contacts: Daniel Munich, Stephen Jerajda

Development Research Policy Unit, University of Cape TownFocus: Research and advocacy conducted by the Development Policy Research Unit (DPRU) atthe University of Cape Town focuses on labor markets, poverty, and inequality, both in SouthAfrica and across Africa. Recent reports explore the South African labor market in a globalizingworld, as well as the links between poverty, inequality, and labor markets in Africa. The DPRUaims to promote in South Africa an enabling economic environment propitious for employmentcreation. DPRU’s research program is undertaken in partnership with South African andinternational partners, including the International Labor Organization (ILO), the U.K. Departmentfor International Development (DFID), the USAID-supported Strategies and Analysis for Growthand Access (SAGA) Project, and the University of Cape Town School of Economics.

Address: Cape Town, South Africa (http://www.commerce.uct.ac.za/dpru)

Contact: Haroon Bhorat (Director)

East-West CenterFocus: The East-West Center, established by the U.S. Congress in 1960, is an education andresearch organization focusing on issues of mutual interest to Asia, the Pacific, and the UnitedStates. Its Poverty Alleviation, Rural Development, and Trade group is considering the effect oftrade liberalization on labor markets in Asian developing countries, i.e. China, India, andIndonesia.

Address: Honolulu, Hawaii (http://www.eastwestcenter.org/res-pr-detail.asp?resproj_ID=90)

http://www.cerge-ei.cz/

http://www.commerce.uct.ac.za/dpru

http://www.eastwestcenter.org/res-pr-detail.asp?resproj_ID=90


Contacts: Tianshu Chu (EWC fellow), Rana Hasan (adjunct EWC fellow, also economist atAsian Development Bank), Devahsish Mitra (Economics Department, Syracuse University)

Economic Policy InstituteFocus: The EPI presents a more skeptical institutional view of the links between trade,globalization, living standards, and labor markets. In “NAFTA’s Cautionary Tale,” EPI looks atthe effects of trade agreements such as NAFTA and CAFTA on labor markets in the U.S.,Canada, and Mexico with regard to labor standards and protection of worker rights. EPI analysissuggests that NAFTA has resulted in job losses, growing inequality, and wage suppression in theU.S. While unemployment rates have gone down in Mexico since NAFTA, EPI points toincreased income inequality and reduced incomes and job quality for the vast majority of workersin Mexico as effects of NAFTA. In its publication “Truth and Consequences of Offshoring” EPIsuggests that the benefits to the U.S. economy of offshoring have been overstated and its negativeconsequences glossed over.

Address: Washington, DC (http://www.epi.org)

Contact: Robert E. Scott (Director of International Programs)

Economic and Social Research FoundationFocus: Tanzania’s Economic and Social Research Foundation (ESRF)’s programs on 1) growthand poverty, and 2) globalization and regional integration examine economic issues of relevanceto labor markets in East and Southern Africa. Research highlights include “Economic Reformsand Labour Market Institutions in Tanzania” (1998).

Address: Dar es Salaam, Tanzania (http://www.esrftz.org)

Contact: Haidari K. R. Amani (Executive Director)

Education Development CenterFocus: EDC is a nonprofit organization focused on the delivery of education-related services(e.g., curriculum development, school leadership training, teacher training,…) in the U.S. andabroad. Its Global Learning Group (GLG) manages basic education, information technology-based learning, and youth development projects. Within the GLG a Workforce Developmentcenter has been active, undertaking a seminal work that examined workforce investmentprograms in the Philippines, Tanzania, Peru, Namibia, and India (Aring and Corbitt, 1996; Aringand McClusky, 1998). EDC’s workforce development group also manages the GWIT projectconsortium, described in greater detail below.

Address: Newton, Massachusetts and Washington, DC (www.edc.org)

Contacts: Ron Israel (Director of EDC international programs); Elizabeth Markovic (Director,GWIT)

http://www.epi.org/

http://www.esrftz.org/

http://www.edc.org/


European-Mediterranean PartnershipFocus: Under the 1995 Barcelona Declaration, the European Union provides resources toMediterranean-rim partner countries to encourage economic growth and job creation. Technicalassistance resources are provided under the MEDA program in a number of areas, including 1)support to business centers to enhance private sector competitiveness (especially of small andmedium sized enterprises) faced with free trade Association Agreements, and 2) social funds foremployment creation (Egypt). A 2003 evaluation of technical assistance delivered as part of theeconomic cooperation programs with Algeria, Egypt, Jordan, Lebanon, Morocco, Syria, andTunisia explicitly links structural adjustment, including privatization of state-owned companies,and progressive trade liberalization with rising unemployment and income inequality in the targetcountries. The evaluation concluded that private sector development was effectively supported bybusiness centers, but that complementary projects to renovate education systems, enhanceentrepreneurs’ management skills, and renovate vocational training systems were not wellcoordinated with them. In addition, insufficient external financing was made available toimplement business center recommendations. Seehttp://europa.eu.int/comm/europeaid/evaluation/program/medrep.htm.

Address: Brussels, Belgium and partner countries(http://europa.eu.int/comm/external_relations/euromed/index.htm)

Contact: Laura Baeza (Unit chief, Near and Middle East and Southern Mediterranean Issues), A.Bassols Soldevila (Desk officer, Economic and Financial Aspects of EuroMed Partnership)

Fair Labor AssociationFocus: In the wake of consumer activism concerned about abusive working conditions inmanufacturing plants around the world, the Fair Labor Association (FLA) was formed in 1999 asa coalition of industry, non-governmental organizations, colleges and universities to promotecompliance with international labor standards. Sixteen brand-label garment and footwear firmsare presently members of the FLA. Twelve firms have been accredited by the FLA to act asindependent external monitors in factories around the world.

Address: Washington, DC (www.fairlabor.org)

Contact: Auret van Heerden (President & CEO)

Global Trade Analysis Project (GTAP)Focus: Purdue University’s Department of Agricultural Economics’ Center for Global TradeAnalysis hosts the GTAP, which since its inception in 1993 has become a global network ofresearchers and policy makers conducting quantitative analysis of international policy issues.GTAP’s goal is to improve the quality of quantitative analysis of global economic issues using aneconomy-wide, computable general equilibrium framework. GTAP unites data, models, andutilities to understand a host of trade policy questions, e.g. impacts of WTO accession, free tradeagreements, specific tariff revisions, specific industry impacts (such as impact of post-MFAenvironment on textiles and clothing industries), etc. A number of GTAP-based analyses have

http://europa.eu.int/comm/europeaid/evaluation/program/medrep.htm

http://europa.eu.int/comm/external_relations/euromed/index.htm

http://www.fairlabor.org/


explored the impact of trade reform on labor market outcomes (e.g., China, Indonesia, Pacificregion).

Address: West Lafayette, Indiana (www.gtap.agecon.purdue.edu)

Contacts: Professor Thomas W. Hertel (Executive Director), Robert A. McDougall (DeputyDirector), Professor Wallace E. Tyner (Senior Policy Advisor)

Global Workforce in Transition ProjectFocus: The Global Workforce in Transition (GWIT) project provides workforce developmentand jobs education services to USAID in Washington and its missions abroad. Services consist ofworkforce assessments and assistance to upgrade secondary education, technical /vocational skillstraining, entrepreneurship and skills training for out-of-school youth and adults, industry-specifictechnical training, and job placement services, including school-to-work programs. GWIT hasprepared workforce assessments or surveyed the applicability of workforce developmentdiagnostic tools in Armenia, Azerbaijan, Bahrain, Bulgaria, Djibouti, Kosovo, Macedonia, andMorocco. USAID’s Asia and Near East Bureau plans to invest in youth workforce developmentprograms, encompassing both education/training (supply) and job creation (demand), in its new“Jobs for the 21st Century” strategy. To prepare for this, rapid assessments will be undertaken inthe Philippines (completed December 2005), India (completed January 2006), Pakistan, and WestBank/Gaza (latter in early 2006).

Address: Washington, DC (www.gwit.us)

Contacts: Clare Ignatowski (GWIT CTO, USAID/EGAT/ED), Robert McClusky(USAID/EGAT/ED), Elizabeth Markovic (EDC GWIT project director)

Greater Access to Trade Expansion ProjectFocus: The GATE project, launched by USAID in 2004, seeks to enhance gender-equitablepractices in policies practiced by USAID missions with respect to their economic growth andtrade activities. After seeking proposals from USAID missions and allocating funds to country-level activities through a competitive bidding process, GATE is working in Bangladesh Vietnam,Albania, Dominican Republic, Peru, Nigeria, Kenya, and South Africa.

Address: Arlington, VA (www.usaid.gov/wid; to come)

Contacts: Mary Knox (Cognizant Technical Officer, USAID/G/WID), Nancy Rockel Pitrone(USAID/G/WID), Peter Davis (Director, Development & Training Services, Inc.)

Institute for Development Studies, University of SussexFocus: The globalization team at IDS conducts research and policy work aimed at promotingsustainable economic growth to reduce poverty in conjunction with other organizations such asILO. Its trade program focuses on human resources, skills, and gender, among other topics. Its

http://www.gtap.agecon.purdue.edu/

http://www.gwit.us/

http://www.usaid.gov/wid


global value chain program assesses how to improve firms’ and workers’ connections to globalproduction networks (http://www.ids.ac.uk/globalvaluechains/).

Address: Brighton, United Kingdom (http://www.ids.ac.uk/ids/global/index.html)

Contacts: John Humphrey (head of Globalisation team); Raphael Kaplinksy, Hubert Schmitz(global value chains group members); Christopher Stevens (trade group); Stephanie Barrientos(gender group)

Institute for International EconomicsFocus: IIE’s Globalization and Labor program focuses on the impact of trade on employment,incomes, labor standards, and outsourcing, as well as on trade adjustment assistance programs inthe U.S. Globalization and multilateral trade reform are also an important area of emphasis.

Address: Washington, DC(http://www.iie.com/research/researcharea.cfm?ResearchTopicID=19#politics)

Contacts: William Cline (trade and incomes), Kimberley Elliot (labor standards), Gary Hufbauer(globalization, trade politics), Jeffrey Schott (multilateral trade reform).

Institute for the Study of LaborFocus: The Institute for the Study of Labor (IZA) conducts research in many aspects of laboreconomics, including labor market programs, behavioral and personnel economics, migration,labor markets and institutions, labor markets in transition economies and now being extended toinclude emerging economies, and the future of labor. In May 2005, IZA convened a conferenceon “Labor Market Dynamics, the Role of Institutions, and Internal Labor Markets in Transitionand Emerging Market Economies”(http://www.iza.org/conference_files/iza_ebrd_2005/viewProgram?conf_id=834).

Address: Bonn, Germany (www.iza.org)

Contacts: Klaus Zimmerman (Director, IZA), Hartmut Lehmann (Program Director, LaborMarkets in Emerging and Transition Economies, http://www.iza.org/en/webcontent/research/ra5)

International Labor OrganizationFocus: The overall focus of the ILO being “promoting decent work for all,” the organization hasseveral programs that address the issue of trade liberalization and labor markets. TheEmployment division’s Employment Strategy group conducts employment and labor marketanalysis in the context of globalization and macroeconomic and development policies. Severalauthors have explored the impact of trade liberalization on labor markets in developing andOECD countries. Analyses of the effect of trade liberalization on labor markets have beenundertaken on a global level, as well as with respect to Mexico, Brazil, China, Malaysia, andIndia. The International Institute for Labor Studies (IILS) is an internal ILO think tank that has

http://www.ids.ac.uk/globalvaluechains/

http://www.ids.ac.uk/ids/global/index.html

http://www.iie.com/research/researcharea.cfm?ResearchTopicID=19#FEFF0070006F006C00690074006900630073

http://www.iza.org/conference_files/iza_ebrd_2005/viewProgram?conf_id=834

http://www.iza.org/

http://www.iza.org/en/webcontent/research/ra5


explored labor market institutions in the context of growth and openness(http://www.ilo.org/public/english/bureau/inst/index.htm).

Address: Geneva, Switzerland (http://www.ilo.org/public/english/employment/strat/analysis/globalpubl.htm)

Contact: Ajit Ghose (employment analysis)

Maquila Solidarity NetworkFocus: The Maquila Solidarity Network (MSN) is indicative of a wide community ofnongovernmental organizations interested in promoting fair trade, including fair labor practices.MSN is the secretariat of the Ethical Trading Action Group (ETAG), a coalition of faith, labor,and nongovernmental organizations that work together to advocate for the global observation ofhumane labor practices based on international labor standards. MSN promotes solidarity withactivist groups in Mexico, Central America, and Asia that advocate for better working conditionsin maquiladoras and export processing zones. MSN organizes a “No Sweat!” consumer boycottcampaign in Canada. It has also written extensively on the global garment industry in the contextof labor practices, the elimination of trade quotas, and regional trade agreements such as CAFTA.For links to a wider set of similarly minded communities, seehttp://www.maquilasolidarity.org/links/index.htm.

Address: Toronto, Canada (http://www.maquilasolidarity.org/)

National Bureau of Economic ResearchFocus: The National Bureau of Economic Research (NBER) is a private, non-profit organizationthat supports a comprehensive program of economic research. NBER’s Labor Studies Programlooks broadly at issues of employment, compensation, and labor organization, both in the U.S.and around the world. One NBER working paper in this area explores the trade-inequality-poverty linkage in the face of recent trade liberalization episodes (Goldberg and Pavcnik, WP10593, June 2004). Another examines cross-country patterns of international trade and child labor(Edmonds and Pavcnik, WP 10317, February 2004).

Address: Cambridge, MA (www.nber.org)

Contact: Professor Richard B. Freeman, Harvard University (NBER Labor Studies Programdirector)

National Governors Association, Center for Best Practices,Workforce DevelopmentFocus: The NGA’s workforce development group focuses on best practices in the areas ofeducation, employment, and job training engaged by U.S. state governments. Activity areasinclude state workforce development system reform; implementation of the WorkforceInvestment Act of 1998; comprehensive state strategies for workforce and economic developmentand welfare-to-work; occupational training for labor market entrants and the unemployed; skill

http://www.ilo.org/public/english/bureau/inst/index.htm

http://www.ilo.org/public/english/employment/strat/analysis/ globalpubl.htm

http://www.ilo.org/public/english/employment/strat/analysis/ globalpubl.htm

http://www.maquilasolidarity.org/links/index.htm

http://www.maquilasolidarity.org/

http://www.nber.org/

CO M M U N I T I E S O F P R A C T I C E D - 11

upgrading for workers who are already employed; school-to-work systems with a particular focuson private sector involvement; skill standards as a basis for organizing education, training, andwork; linkages among education reform, higher education, and economic development; andeffectiveness of state employment and training systems in delivering results.

Address: Washington, DC (www.nga.org)

Contacts: Sam Leiken, Martin Simon

Organization for Economic Cooperation and DevelopmentFocus: The OECD nominally includes a focus on employment and social safety nets indeveloping countries, though its website reveals few recent publications in this area. In its latest“Employment Outlook,” the OECD considers strategies to encourage employment in order tohelp countries fully benefit from globalization and to prevent a backlash against open trade. Their2005 policy brief on this topic encourages a combination of direct measures (e.g., active labormarket programs, unemployment insurance, targeted trade adjustment assistance) and indirectmeasures (e.g., economic growth policies that strengthen job creation, education and training toupgrade skills, policies to encourage industrial redevelopment and improved competitiveness, andstructural reallocation of labor to most productive sectors) to this end. In its Trade Committee, theOECD has recently considered the linkage between trade and structural adjustment (i.e.,economic transformation, not 1980s/90s structural adjustment programs), and within that, theimpact on workers. The OECD’s Development Cooperation directorate and the OECD horizontalprogram on trade and structural adjustment contributed a working paper that examines theseissues in the context of developing countries (J. Andersson, F. Bonaglia, K. Fukasaku, and C.Lesser, Working Paper No. 245, July 2005).

Address: Paris, France (www.oecd.org/employment and www.oecd.org/trade)

Overseas Development InstituteFocus: ODI’s programs on Trade Liberalization and Poverty and International EconomicDevelopment are focusing on issues of interest. A new set of studies on globalization andeducation was commissioned by DFID. ODI is also engaged in a research seminar oninternational trade and skill-biased technological change in 2005-06.

Address: London, United Kingdom (http://www.odi.org.uk/iedg)

Contacts: Dirk Willem te Velde (globalization and education), Sheila Page (international tradeand skill-biased technological change)

OxfamFocus: “Make Trade Fair” is a key campaign slogan of Oxfam. Trade, and its impacts on locallivelihoods is a key focus issue. The organization is concerned with the impact of tradeagreements on poverty reduction, employment, agriculture, and social services. Oxfam recognizesthat “trade can be a powerful engine for poverty reduction, but rigged trade rules and double

http://www.nga.org/

http://www.oecd.org/employment

http://www.oecd.org/trade

http://www.odi.org.uk/iedg


standards too often mean it now hurts people’s livelihoods,” according to the Oxfam U.K.website. Trade topics covered by Oxfam policy analysts include assessments of the impacts of 1)the Free Trade Agreement of the Americas on Latin American and Caribbean countries; 2) Euro-Mediterranean Agreements on Mediterranean and Arab countries; 3) U.S. cotton policy on WestAfrican cotton farmers; 4) the WTO Agreement on Agriculture on poor farmers around the world;and 5) trends in international commodity markets (e.g., coffee, sugar) on developing countryfarmers.

Address: (Various locations) (http://www.oxfam.org)

Rockefeller FoundationFocus: Two themes which receive grant support from the Rockefeller Foundation are GlobalInclusion and Working Communities. In addition, Rockefeller’s East and Southern Africaregional program considers education and training as a component to help citizens take advantageof broader economic opportunities.

Address: New York, NY (http://www.rockfound.org )

Contact: Darren Walker (Director, Working Communities)

Solidarity CenterFocus: The American Center for International Labor Solidarity (ACILS) is part of theinternational outreach program of the U.S. American Federation of Labor—Congress ofIndustrial Organizations (AFL-CIO). ACILS works on child labor, export processing zones, theglobal economy, women’s equality, and worker rights, among other issues. Through its advocacywork, ACILS helps to insure that workers’ views and rights are visible and heard in tradeliberalization and economic management debates in developing countries around the world.

Address: Washington, DC (http://www.solidaritycenter.org/)

Strategies and Analysis for Growth and Access ProjectFocus: SAGA’s research themes are 1) schooling, education, and human capital; 2) health andnutrition; 3) risk, vulnerability, and poverty dynamics; and 4) empowerment & institutions. Labormarkets in sub-Saharan Africa (broadly, or by country) are the focus of analysis in the context ofeconomic growth and structural economic change.

Address: Cornell University, Ithaca, NY (http://saga.cornell.edu)

Contacts: David Sahn (Chief of Party and Director, Cornell Food and Nutrition Policy Program);Peter Glick (Senior Research Associate, Cornell Division of Nutritional Sciences)

http://www.oxfam.org/

http://www.rockfound.org/

http://www.solidaritycenter.org/

http://saga.cornell.edu/


United Nations Conference on Trade and Development(UNCTAD), Trade Analysis BranchFocus: UNCTAD’s Trade Analysis Branch produces research and analysis on international tradeissues of interest to developing countries. In 2005, the Trade Analysis Branch completed a projectentitled “Coping with Trade Reforms: a Developing Country Perspective on the WTO IndustrialTariff Negotiations.” The project included three components: an analysis of developing countries’potential gains and losses from tariff liberalization, conducted using the GTAP modeling system(see description above); a review of literature on adjustment costs related to trade reform; andeight country studies focused on adjustment to trade reforms. The case studies coveredBangladesh, Brazil, Bulgaria, India, Jamaica, Malawi, the Philippines, and Zambia. The fullproject report may be downloaded from the Trade Analysis Branch’s website:http://192.91.247.38/tab/events/namastudy/coping.asp

Address: Geneva, Switzerland (http://192.91.247.38/tab/Default.asp)

Contact: Santiago Fernández de Córdoba, Economist, UNCTAD.

U.S. Agency for International DevelopmentFocus: Various groups within USAID are focusing or beginning to focus on labor market issuesin partner countries.

Global Democracy, Conflict, and Humanitarian Assistance Bureau, Democracy &Governance Office: USAID’s DCHA/DG office has supported the organization and supportof labor unions in countries around the world for several decades. This activity is undertakenas part of DCHA/DG’s strategy to support the development of civil society organizations.The prime implementer for this work is the AFL-CIO’s international Solidarity Center(formerly known as the American Center for International Labor Solidarity, ACILS),supported via a series of cooperative agreements since the 1990s.

Economic Growth, Agriculture, and Trade Bureau, Education Office: USAID’s globalEducation office manages an indefinite quantity contract known as Global Workforce inTransition (GWIT) (see above).

Economic Growth, Agriculture, and Trade Bureau, Economic Growth Office, Trade andInvestment Team: The Trade and Investment Team manages a wide range of trade andinvestment capacity building activities, including the Trade Capacity Building Project, underwhich this overview and resource guide has been prepared..

Economic Growth, Agriculture, and Trade Bureau, Women in Development Office: TheWID office’s new GATE project (see above) is the relevant activity in this area.

Asia & Near East Bureau: ANE is developing a “Jobs for the 21st Century” initiative,combining both education and economic growth perspectives in one cross-cutting strategicinitiative. Four country missions (Philippines, India, Pakistan, and West Bank/Gaza) willundertake workforce assessments under the auspices of the GWIT project.

http://192.91.247.38/tab/Default.asp


Europe & Eurasia (E&E) Bureau: Programs to address worker displacement caused bypolitical and economic reform in the aftermath of the fall of the Soviet Union were in placebetween 1996, with the passage of the Support for Eastern European Democracy (SEED) Act,and the early 2000s. SEED funds were allocated to USAID and then on to the U.S.Department of Labor’s International Labor Affairs Bureau (ILAB). ILAB in turn contractedwith Worldwide Strategies Inc. (see below) for implementation of market-focused jobcreation programs that included one or more of the following components: 1) labormanagement adjustment committees to assist companies that shed significant numbers ofworkers, 2) Quickstart, a project component that provided management assistance tocompanies to retool and thereby retain workers, and 3) local economic development programsthat brought local community stakeholders together to envision new economic futures fortheir localities and work towards implementation of that vision. More recently, the GWITproject has undertaken workforce assessments in a number of E&E countries. Follow-onactivities are being developed by several of those missions.

Address: Washington, DC (http://www.usaid.gov) and abroad

Contacts: Kimberly Ludwig (DCHA/DG), Clare Ignatowski (EGAT/ED), Tracy Quilter(EGAT/EG/TI), Mary Knox (EGAT/WID), Nancy R. Pitrone (EGAT/WID), Seema Agarwal-Harding (ANE/TS), Tony Chan (ANE/TS), Paul Mulligan (ANE/TS), Elizabeth McKeon(EE/DGST).

U.S. Department of LaborFocus: USDOL’s work is of interest in two areas: international labor affairs programs that it runsin partner countries around the world and trade adjustment assistance that it provides to U.S.workers dislocated as a result of international trade. Each is summarized below:

International labor cooperation issues have been the domain of the Bureau of InternationalLabor Affairs (ILAB) (http://www.dol.gov/ilab/), administered through several offices,including:

National Administrative Office (NAO) oversees labor cooperation under the NorthAmerican Free Trade Agreement. (http://www.dol.gov/ILAB/programs/nao/main.htm)

Office of Foreign Relations (OFR)’s technical cooperation group serves as theclearinghouse for assistance to developing and transition countries on core laborstandards, work conditions, training for displaced workers, employment services, andworkplace HIV/AIDS prevention programs.(http://www.dol.gov/ilab/programs/ofr/technical_cooperation.htm)

International Child Labor Program (ICLP) administers programs to combat the worstforms of child labor and educate on child labor problems. Much of the funding under thisoffice was in turn implemented via the International Labor Organization.(http://www.dol.gov/ILAB/programs/iclp/main.htm)

Trade Adjustment Assistance (TAA) is provided to U.S. firms, farms, and workers that arenegatively affected by trade agreements. The TAA program for workers is managed by the

http://www.usaid.gov/

http://www.dol.gov/ilab/

http://www.dol.gov/ILAB/programs/nao/main.htm

http://www.dol.gov/ilab/programs/ofr/technical_cooperation.htm

http://www.dol.gov/ILAB/programs/iclp/main.htm


DOL’s Employment and Training Administration’s (ETA) Office of National Response(ONR). (http://www.doleta.gov/tradeact/) The U.S. Commerce Department manages the TAAprogram for firms, while the U.S. Department of Agriculture’s Foreign Agricultural Servicehandles the assistance program aimed at the farm sector.

Address: Washington, DC (www.dol.gov)

Contacts: 1) International Labor Technical Cooperation: Sue Hahn (Assistant Director,DOL/ILAB/OFR), Steve Marler (Project Managers Team Leader, DOL/ILAB/OFR) Bruno Bui(DOL/ILAB/OFR), Maya Beja (DOL/ILAB/OFR)

2) Trade Adjustment Assistance: Douglas Small (Director, DOL/ETA/ONR), Terry Clark (ETA),Erin Fitzgerald (ETA), Heidi Casta (ETA/Office of Policy Development and Research/Policy andLegislation Team Leader), Dorothy Comer (ETA)

U.S. Government Accountability OfficeFocus: The U.S. GAO responds to Congressional requests for evaluation studies of U.S.government programs. Its Education, Workforce, and Income Security group covers educationand employment issues from cradle to grave, including basic education, adult education,workforce training, trade adjustment assistance, and income support programs. The InternationalTrade group has examined such issues as U.S. government trade capacity building programs, U.S.assistance to facilitate agriculture sector-related free trade agreement implementation in Mexico,and the human resource impact of an accelerated free trade agreement negotiations agenda on theU.S. government.

Address: Washington, DC (http://www.gao.gov)

Contacts: Sigurd Nilsen (Director, EWIS); Dianne Blank (Assistant Director, EWIS); LorinObler (EWIS)

U.S. Trade Representative’s OfficeFocus: Both the USTR office for Trade Capacity Building and the office for Labor Affairsoversee the coordination of technical assistance to developing country partners with respect totrade-induced economic transitions. Assistance includes support for rural diversification,commercial market linkages, and labor department cooperation, especially in the areas of laborstandards and child labor.

Address: Washington DC (http://www.ustr.gov)

Contacts: Mary Ryckman (Assistant USTR for Trade Capacity Building), Lewis Karesh(Assistant USTR for Labor Affairs), Aaron Rosenberg (Director for Trade and Labor Affairs)

W. E. Upjohn Institute for Employment ResearchFocus: The Upjohn Institute’s mission is “finding and promoting solutions to employment-related problems.”. The Institute researches issues including social safety net programs (e.g.,

http://www.doleta.gov/tradeact/

http://www.dol.gov/

http://www.gao.gov/

http://www.ustr.gov/


disability and workers’ compensation, unemployment insurance), family labor issues, welfare-to-work, and workforce education and training. Labor standards in the U.S. and Canada are trackedin a labor standards database, available online. In 2004, the Upjohn Institute published“International Trade and Labor Markets” (C. Davidson and S. Matusz), which explores effects ofdiffering degrees of labor market flexibility on employment and labor market transitions, andexamines the relative merits of policies such as trade adjustment assistance, wage subsidies fordislocated workers, and job training subsidies for addressing the issues.

Address: Kalamazoo, Michigan (http://www.upjohninst.org/)

Contact: Randall Eberts (Executive Director, Economic development and local labor markets)

Women in Informal Employment: Globalizing and OrganizingFocus: This group, referred to as WIEGO, is a global research and policy analysis networkfocused on poor women employed in the informal economy. WIEGO works with membership-based organizations of workers in the informal economy, NGOs, research and statisticsinstitutions, national governments, and international development agencies. WIEGO’s GlobalMarkets Program assesses the impact of trade liberalization on women producers and workers(http://www.wiego.org/main/areas2.shtml). The Social Protection group explores socialprotection mechanisms that can be extended to women informal workers(http://www.wiego.org/main/areas3.shtml). An extensive list of related institutions is provided athttp://www.wiego.org/main/links.shtml.

Address: Cambridge, MA (WIEGO Secretariat)

Contact: Martha Chen (Coordinator, Harvard University, Kennedy School of Government)

Women’s Edge CoalitionFocus: The Women’s Edge Coalition is a membership organization. Its advocacy focuses onassuring that U.S. international trade and assistance programs create opportunities for women andtheir families around the world. With support from the Rockefeller Foundation, the Women’sEdge Coalition developed a framework for assessing the gender impacts of trade and investmentagreements (Gammage et al., 2002). The framework explores the price, employment, wage,consumption, and legal and regulatory effects of agreements, by sector, and identifies analytictools that can be used to undertake such impact assessments. This methodology is now being usedby USAID’s GATE project, where several authors of the Women’s Edge Coalition’s TradeImpact Review now are employed.

Address: Washington, DC (www.womensedge.org)

Contact: Ritu Sharma (Co-Founder and President)

http://www.upjohninst.org/

http://www.wiego.org/main/areas2.shtml

http://www.wiego.org/main/areas3.shtml

http://www.wiego.org/main/links.shtml

http://www.womensedge.org/


World BankFocus: In a recent survey of research priorities for all major departments of the World Bank,labor market issues ranked at or near the top of the priority list. The World Bank’s SocialProtection and Poverty Reduction and Economic Management networks are embarking on a jointresearch program in the area of labor markets. This 2-3-year effort will address the followingconcerns (taken from World Bank 2005a):

How do labor market policies and institutions contribute to a better investment climate whilepromoting decent working conditions and support to workers affected by changes?

How do labor markets function in the regulated and unregulated sectors, and how couldpolicies be tailored to the needs of workers in the two sectors?

Because economic reform does not happen in isolation, what are the costs of reforming someareas (i.e., product or financial markets) and not labor markets? Is there an optimal sequencefor reforms? How can the Bank facilitate the political process of labor reforms?

What are the interactions between education and labor market policies that can promotehuman capital, enhance productivity and wages, and promote adaptability of workers?

Address: Washington, DC (www.worldbank.org)

Contacts: Louise Cord (PREM), Jean-Jacques Dethier (Development Economist’s Office RS,Research Manager), Robert Holtzmann (SP), Pierella Paci (PREM), Alan Winters (Director,Development Economics Research Group)

World Commission on the Social Dimension of GlobalizationFocus: Co-chaired by H.E. Ms. Tarja Halonen, the President of Finland, and H.E. Mr. BenjaminMkapa, the President of Tanzania, the World Commission on the Social Dimension ofGlobalization was charged with identifying policies to make globalization more inclusive and lesssocially divisive. The Commission’s secretariat was housed at the ILO during its two-year period(2002-2004), and it is now the ILO that is charged with following up on its recommendations.

Address: Geneva, Switzerland (http://www.ilo.org/public/english/wcsdg/index1.htm andhttp://www.ilo.org/public/english/fairglobalization/index.htm)

Contact: Mr. Padmanabha Gopinath (Executive Secretary, World Commission)

http://www.worldbank.org/

http://www.ilo.org/public/english/wcsdg/index1.htm

http://www.ilo.org/public/english/fairglobalization/index.htm


World Trade OrganizationFocus: The research department of the WTO Secretariat addressed the issue of adjustment costsin response to trade liberalization with a special study, Adjusting to Trade Liberalization(Bacchetta and Jansen, 2003). The study explores evidence on adjustment costs, such as the effectof trade liberalization on (un)employment; how workers are affected by adjustment costs;empirical evidence on the losses suffered by displaced workers; ways in which the governmentscan facilitate the adjustment process in labor markets (e.g., with domestic institutions and policiessuch as credit markets, social safety nets, education and training, infrastructure and utilities,information, domestic macroeconomic policy and careful staging of trade policy reforms).

Address: Geneva, Switzerland(http://www.wto.org/english/res_e/booksp_e/special_study_7_e.pdf)

Worldwide Strategies Inc.Focus: With the collapse of the Soviet Union, the U.S. Government provided resources throughUSAID and the U.S. Department of Labor to design and implement programs to assist dislocatedworkers throughout Central Europe. Under the Support for Eastern European Democracies(SEED) Act, WSI implemented integrated community development programs in Bulgaria,Hungary, Macedonia, Poland, Romania, and Ukraine.

Address: Boise, Idaho and Washington, DC (http://www.w-s-i.net/cee/)

Contact: Virginia Stacey (Executive Director), Gedeon Werner (Deputy Director)

http://www.wto.org/english/res_e/booksp_e/special_study_7_e.pdf

http://www.w-s-i.net/cee/